NEW ISSUE – BOOK-ENTRY ONLY RATINGS: SEE “RATINGS ......NEW ISSUE – BOOK-ENTRY ONLY RATINGS:...

NEW ISSUE – BOOK-ENTRY ONLY RATINGS: SEE “RATINGS” HEREIN

The delivery of the Variable Rate Series 2005 Bonds is subject to the opinions of Kutak Rock LLP and Pugh, Jones, Johnson & Quandt, P.C., Co-Bond Counsel, to the effect that under existing law, interest on the Variable Rate Series 2005 Bonds is not includible in the gross income of the owners thereof for federal income tax purposes and that, assuming continuing compliance with the applicable requirements of the Internal Revenue Code of 1986, interest on the Variable Rate Series 2005 Bonds will continue to be excluded from the gross income of the owners thereof for federal income tax purposes. Interest on the Variable Rate Series 2005 Bonds is not an item of tax preference for purposes of computing individual or corporate alternative minimum taxable income, but must be taken into account as earnings and profits of a corporation when computing, for example, corporate alternative minimum taxable income for purposes of the corporate alternative minimum tax. See “TAX MATTERS” herein. Interest on the Variable Rate Series 2005 Bonds is not exempt from present Illinois income taxes.

$300,000,000CITY Of CHICAGO

Chicago O’Hare International Airport

$200,000,000General Airport Third Lien

Revenue BondsSeries 2005C

$100,000,000General Airport Third Lien

Revenue BondsSeries 2005D

Dated: Date of Delivery Price: 100% Due: January 1, 2035

The Variable Rate Series 2005 Bonds (as defined herein) will be limited obligations of the City of Chicago (the “City”) payable solely from, and secured by a pledge of, Third Lien Revenues (as defined herein), derived from the operation of Chicago O’Hare International Airport (“O’Hare”), and certain other moneys. The Variable Rate Series 2005 Bonds will be secured on a parity basis as to the Third Lien Revenues with the City’s other Third Lien Obligations (as defined herein) that may be outstanding from time to time, other than with respect to the debt service reserve funds therefor. The claim of the Variable Rate Series 2005 Bonds to the net revenues of O’Hare is subordinate and junior in right of payment to the claim of the City’s First Lien Bonds and Second Lien Obligations. See “SECURITY FOR THE VARIABLE RATE SERIES 2005 BONDS.” Neither the faith and credit nor the taxing power of the State of Illinois, the City or any other political subdivision of the State of Illinois will be pledged to the payment of the principal or purchase price of or interest on the Variable Rate Series 2005 Bonds.

The Variable Rate Series 2005 Bonds will be issued as fully registered bonds in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the Variable Rate Series 2005 Bonds. Purchasers of the Variable Rate Series 2005 Bonds will not receive certificates representing their interests in the Variable Rate Series 2005 Bonds purchased. Ownership by the beneficial owners of the Variable Rate Series 2005 Bonds will be by book-entry only. Principal of and interest on the Variable Rate Series 2005 Bonds will be paid by LaSalle Bank National Association, Chicago, Illinois, as trustee, to DTC, which in turn will remit such principal and interest payments to its participants for subsequent disbursement to the beneficial owners of the Variable Rate Series 2005 Bonds. As long as Cede & Co. is the registered owner as nominee of DTC, payments on the Variable Rate Series 2005 Bonds will be made to such registered owner, and disbursal of such payments to beneficial owners will be the responsibility of DTC and its participants. See “THE VARIABLE RATE SERIES 2005 BONDS – Book-Entry Only System.”

Each series of the Variable Rate Series 2005 Bonds will initially bear interest at a Weekly Interest Rate. The initial Weekly Interest Rate for each series of the Variable Rate Series 2005 Bonds will be determined by the Underwriters. Thereafter, the Weekly Interest Rate with respect to each series of the Variable Rate Series 2005 Bonds will be determined by Citigroup Global Markets Inc., as Remarketing Agent.

Payment of the purchase price of the Variable Rate Series 2005C Bonds that are tendered for purchase and not remarketed may be made, subject to the satisfaction of certain conditions precedent, from amounts available under a Standby Bond Purchase Agreement (the “Series 2005C Liquidity Facility”) relating to such series provided by DEPFA BANK plc, acting through its New York Branch. Payment of the purchase price of the Variable Rate Series 2005D Bonds that are tendered for purchase and not remarketed may be made, subject to the satisfaction of certain conditions precedent, from amounts available under a Standby Bond Purchase Agreement (the “Series 2005D Liquidity Facility”) relating to such series provided by Dexia Credit Local, acting through its New York Branch. The Series 2005C Liquidity Facility will expire, unless extended or terminated earlier in accordance with its terms, on December 22, 2012. The Series 2005D Liquidity Facility will expire, unless extended or terminated earlier in accordance with its terms, on December 22, 2012. Each Liquidity Facility may also be suspended or terminated, without notice, in certain circumstances. See “INITIAL LIQUIDITY FACILITIES.”

At no time will any Variable Rate Series 2005 Bonds bear interest at a Weekly Interest Rate that is in excess of the lesser of 12% per annum and the Maximum Lawful Rate permitted by the Ordinance. At the direction of the City, and upon compliance with conditions set forth in the Third Lien Indenture, a series of Variable Rate Series 2005 Bonds may be converted to bear interest at a Daily Interest Rate, Long-Term Interest Rate, Bond Interest Term Rate or Auction Rate as set forth herein; conversion of one series of Variable Rate Series 2005 Bonds may occur without conversion of both series. While bearing interest at a Weekly Interest Rate, interest on the Variable Rate Series 2005 Bonds is payable on the first Business Day of each calendar month, commencing January 3, 2006. While the Variable Rate Series 2005 Bonds bear interest at a Weekly Interest Rate, the Variable Rate Series 2005 Bonds will be available to purchasers in denominations of $100,000 or any integral multiple of $5,000 in excess thereof.

This Official Statement generally describes each series of the Variable Rate Series 2005 Bonds only while bearing interest at a Weekly Interest Rate. Prospective purchasers of the Variable Rate Series 2005 Bonds bearing interest at rates other than the Weekly Interest Rate should not rely on this Official Statement. It is not a requirement that both series of Variable Rate Series 2005 Bonds be in the same interest mode at the same time.

The Variable Rate Series 2005 Bonds are subject to optional redemption prior to maturity. The Variable Rate Series 2005C Bonds, but not the Variable Rate 2005D Bonds, are subject to mandatory redemption prior to maturity. The Variable Rate Series 2005 Bonds of each series are also subject to optional and mandatory tender for purchase as described herein. See “THE VARIABLE RATE SERIES 2005 BONDS – Redemption Provisions” and “– Tender and Purchase of Variable Rate Series 2005 Bonds” herein.

The scheduled payment of the principal of and interest on each series of the Variable Rate Series 2005 Bonds when due will be guaranteed by a separate bond insurance policy (collectively, the “Bond Insurance Policies”) to be issued by CIFG Assurance North America, Inc. (the “Bond Insurer”). The Bond Insurance Policies will be issued upon the delivery of the Variable Rate Series 2005 Bonds, as more fully described herein. The Bond Insurance Policies do not insure the payment of the purchase price of Variable Rate Series 2005 Bonds that are tendered for purchase and not remarketed. See “BOND INSURANCE POLICIES.”

The Variable Rate Series 2005 Bonds are offered when, as and if issued by the City and accepted by the Underwriters, subject to the approval of their validity by Kutak Rock LLP, Chicago, Illinois, and Pugh, Jones, Johnson & Quandt, P.C., Chicago, Illinois, Co-Bond Counsel, and certain other conditions. Certain legal matters will be passed on for the City by its Corporation Counsel; for the Underwriters by their co-counsel, Burke, Warren, MacKay & Serritella, P.C., Chicago, Illinois, and Chico & Nunes LLP, Chicago, Illinois; for the Liquidity Facility Providers by their U.S. counsel, Chapman and Cutler LLP, Chicago, Illinois; for DEPFA BANK plc by its in-house counsel and for Dexia Credit Local by JeantetASSOCIES, New York, New York; and for the Bond Insurer by its General Counsel. It is expected that delivery of the Variable Rate Series 2005 Bonds in book-entry form will be made through the facilities of DTC on or about December 22, 2005.

CitigroupCabrera Capital Markets, Inc. first Albany Capital Inc.December 21, 2005

REGARDING THE USE OF THIS OFFICIAL STATEMENT

The Underwriters have provided the following sentence for inclusion in the Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

Excluding all information concerning CIFG Assurance North America, Inc. (the “Bond Insurer”) contained under the caption “BOND INSURANCE POLICIES”, and in APPENDIX G − “SPECIMEN BOND INSURANCE POLICY” herein, none of the information in this Official Statement has been supplied or verified by the Bond Insurer, and the Bond Insurer makes no representation or warranty, express or implied, as to (i) the accuracy or completeness of such information, (ii) the validity of the Variable Rate Series 2005 Bonds, or (iii) the tax-exempt status of interest on the Variable Rate Series 2005 Bonds.

Excluding all information concerning DEPFA BANK plc, acting through its New York Branch (the “Series 2005C Liquidity Facility Provider”) and Dexia Credit Local, acting through its New York Branch (the “Series 2005D Liquidity Facility Provider” and, collectively with the Series 2005C Liquidity Facility Provider, the “Liquidity Facility Providers”) contained under the caption “INITIAL LIQUIDITY FACILITIES”, APPENDIX H – “THE SERIES 2005C LIQUIDITY FACILITY PROVIDER”, and APPENDIX I − “THE SERIES 2005D LIQUIDITY FACILITY PROVIDER” herein, none of the information in this Official Statement has been supplied or verified by the Liquidity Facility Providers, and the Liquidity Facility Providers make no representation or warranty, express or implied, as to (i) the accuracy or completeness of such information, (ii) the validity of the Variable Rate Series 2005 Bonds, or (iii) the tax-exempt status of interest on the Variable Rate Series 2005 Bonds.

This Official Statement is being used in connection with the sale of the Variable Rate Series 2005 Bonds and may not be reproduced or used, in whole or in part, for any other purpose. Certain information contained in this Official Statement has been obtained by the City from the Bond Insurer, the respective Liquidity Facility Providers, DTC and other sources that are deemed to be reliable; however, no representation or warranty is made as to the accuracy or completeness of such information by the City. The delivery of this Official Statement at any time does not imply that information herein is correct as of any time subsequent to its date.

This Official Statement should be considered in its entirety and no one factor considered more or less important than any other by reason of its position in this Official Statement. Where statutes, reports or other documents are referred to herein, reference should be made to such statutes, reports or other documents in their entirety for more complete information regarding the rights and obligations of parties thereto, facts and opinions contained therein and the subject matter thereof. Any statements made in this Official Statement, including the Appendices, involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of such estimates will be realized. This Official Statement contains certain forward-looking statements and information that are based on the beliefs of the City as well as assumptions made by and currently available to the City. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or expected.

No dealer, broker, sales representative or any other person has been authorized by the City to give any information or to make any representation other than those contained in this Official Statement in connection with the offering it describes and, if given or made, such other information or representation must not be relied upon as having been authorized by the City. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy any securities other than those described on the cover page and inside cover page hereof, nor shall there be any offer to sell, solicitation of an offer to buy or sale of, the Variable Rate Series 2005 Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. The information and opinions expressed herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of O’Hare since the date of this Official Statement. Neither this Official Statement nor any statement that may have been made verbally or in writing is to be construed as a contract with the registered or beneficial owners of the Variable Rate Series 2005 Bonds.

In making an investment decision, investors must rely on their own examination of O’Hare and the terms of this offering, including the merits and the risks involved. These securities have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offense.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE VARIABLE RATE SERIES 2005 BONDS. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR, AND PURCHASE, THE VARIABLE RATE SERIES 2005 BONDS IN THE OPEN MARKET. THE PRICES AND OTHER TERMS RESPECTING THE OFFERING AND SALE OF THE VARIABLE RATE SERIES 2005 BONDS MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS AFTER THE VARIABLE RATE SERIES 2005 BONDS ARE RELEASED FOR SALE, AND THE VARIABLE RATE SERIES 2005 BONDS MAY BE OFFERED AND SOLD AT PRICES OTHER THAN THE INITIAL OFFERING PRICES, INCLUDING SALES TO DEALERS WHO MAY SELL THE VARIABLE RATE SERIES 2005 BONDS INTO INVESTMENT ACCOUNTS.

CITY OF CHICAGO Chicago O’Hare International Airport

MAYOR Richard M. Daley

CITY TREASURER Judith C. Rice

CITY CLERK James J. Laski

CITY COUNCIL COMMITTEE ON FINANCE

Edward M. Burke, Chairman

CHIEF FINANCIAL OFFICER Dana R. Levenson

ACTING CITY COMPTROLLER Stephen C. Hughes

BUDGET DIRECTOR Paul A. Volpe

CORPORATION COUNSEL Mara S. Georges, Esq.

DEPARTMENT OF AVIATION Patrick J. Harney, Acting Commissioner

O’HARE MODERNIZATION PROGRAM Rosemarie S. Andolino, Executive Director

CO-BOND COUNSEL Kutak Rock LLP

Pugh, Jones, Johnson & Quandt, P.C.

AIRPORT CONSULTANT Ricondo & Associates, Inc.

FINANCIAL ADVISOR Mesirow Financial, Inc.

ADDRESSES OF PRINCIPAL PARTIES

City of Chicago

Department of Finance 33 North LaSalle Street, 6th Floor

Chicago, Illinois 60602 Attention: Chief Financial Officer

Trustee

LaSalle Bank National Association 135 South LaSalle Street, Suite 1960

Chicago, Illinois 60603 Attention: Corporate Trust Administration

Remarketing Agent

Citigroup Global Markets Inc. 390 Greenwich Street, 5th Floor New York, New York 10013

Attention: Short-Term Tax-Exempt Trading Phone: 212-723-7082

Fax: 212-723-8809

Series 2005C Liquidity Facility Provider

DEPFA BANK plc 623 Fifth Avenue, 22nd Floor New York, New York 10022

Series 2005D Liquidity Facility Provider

Dexia Credit Local 445 Park Avenue, 7th Floor

New York, New York 10022

TABLE OF CONTENTS Page

INTRODUCTION .......................................................................................................................................1 PLAN OF FINANCE...................................................................................................................................7 SOURCES AND USES OF FUNDS...........................................................................................................9 THE VARIABLE RATE SERIES 2005 BONDS .......................................................................................9 SECURITY FOR THE VARIABLE RATE SERIES 2005 BONDS ........................................................21 INITIAL LIQUIDITY FACILITIES .........................................................................................................30 ALTERNATE LIQUIDITY FACILITIES ................................................................................................35 REMARKETING AGREEMENT.............................................................................................................37 BOND INSURANCE POLICIES..............................................................................................................38 CHICAGO O’HARE INTERNATIONAL AIRPORT..............................................................................40 OPERATIONS AT O’HARE ....................................................................................................................44 O’HARE FINANCIAL INFORMATION .................................................................................................51 CAPITAL DEVELOPMENT PROGRAMS .............................................................................................56 REPORT OF THE AIRPORT CONSULTANT........................................................................................63 FEDERAL LEGISLATION, STATE ACTIONS, AND

PROPOSED SOUTH SUBURBAN AIRPORT...........................................................................68 CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES,

THE AIRLINE INDUSTRY, AND O’HARE..............................................................................70 LITIGATION.............................................................................................................................................81 TAX MATTERS........................................................................................................................................83 CERTAIN LEGAL MATTERS.................................................................................................................85 UNDERWRITING ....................................................................................................................................85 SECONDARY MARKET DISCLOSURE................................................................................................85 AIRPORT CONSULTANT.......................................................................................................................86 FINANCIAL ADVISOR ...........................................................................................................................86 FINANCIAL STATEMENTS ...................................................................................................................86 RATINGS ..................................................................................................................................................86 MISCELLANEOUS ..................................................................................................................................87 AUTHORIZATION...................................................................................................................................87 Appendix A – Glossary of Terms .............................................................................................................A-1Appendix B – Summary of Certain Provisions of the Third Lien Indenture ............................................ B-1Appendix C – Summary of Certain Provisions of the Airport Use Agreements ...................................... C-1Appendix D – Audited Financial Statements............................................................................................D-1Appendix E – Report of the Airport Consultant ....................................................................................... E-1Appendix F – Proposed Form of Opinions of Co-Bond Counsel ..............................................................F-1Appendix G – Specimen Bond Insurance Policy......................................................................................G-1Appendix H – The Series 2005C Liquidity Facility Provider...................................................................H-1Appendix I – The Series 2005D Liquidity Facility Provider ......................................................................I-1

[THIS PAGE INTENTIONALLY LEFT BLANK]

OFFICIAL STATEMENT

$300,000,000 City of Chicago


$200,000,000 General Airport Third Lien

Revenue Bonds Series 2005C

$100,000,000 General Airport Third Lien

Revenue Bonds Series 2005D

INTRODUCTION

This Official Statement is furnished in order to set forth certain information in connection with the offering and sale by the City of Chicago (the “City”) of its $200,000,000 aggregate principal amount of Chicago O’Hare International Airport General Airport Third Lien Revenue Bonds, Series 2005C (the “Variable Rate Series 2005C Bonds”) and its $100,000,000 aggregate principal amount of Chicago O’Hare International Airport General Airport Third Lien Revenue Bonds, Series 2005D (the “Variable Rate Series 2005D Bonds” and, collectively with the Variable Rate Series 2005C Bonds, the “Variable Rate Series 2005 Bonds”). Simultaneously with the issuance of the Variable Rate Series 2005 Bonds, the City plans to issue $961,010,000 aggregate principal amount of its Chicago O’Hare International Airport General Airport Third Lien Revenue Bonds, Series 2005A (the “Fixed Rate Series 2005A Bonds”) and $238,990,000 aggregate principal amount of its Chicago O’Hare International Airport General Airport Third Lien Revenue Refunding Bonds, Series 2005B (the “Fixed Rate Series 2005B Bonds” and, collectively with the Fixed Rate Series 2005A Bonds, the “Fixed Rate Series 2005 Bonds”). The Fixed Rate Series 2005 Bonds and the Variable Rate Series 2005 Bonds are collectively referred to herein as the “Series 2005 Bonds.” Certain other capitalized terms used in this Official Statement, unless otherwise defined herein, are defined in APPENDIX A ─ “GLOSSARY OF TERMS.”

This Official Statement describes only the terms and provisions applicable to each series of the Variable Rate Series 2005 Bonds while such series bears a Weekly Interest Rate. If the Interest Rate Period applicable to a series of the Variable Rate Series 2005 Bonds is changed to a different Interest Rate Period, it is expected that the City will supplement this Official Statement or deliver a new official statement or other disclosure document describing such series of Variable Rate Series 2005 Bonds for the new Interest Rate Period. Purchasers of the Variable Rate Series 2005 Bonds of a series should not rely on this Official Statement for information relating to such series of Variable Rate Series 2005 Bonds bearing interest for any Interest Rate Period other than the Weekly Interest Rate Period.

Further, each Liquidity Facility described in this Official Statement is only applicable to the related series of Variable Rate Series 2005 Bonds while such series bears interest at the Weekly Interest Rate or the Daily Interest Rate. If the Interest Rate Period applicable to a series of Variable Rate Series 2005 Bonds is changed to any other Interest Rate Period during which such series of Variable Rate Series 2005 Bonds would continue to be remarketed, the City will be required to amend the related existing Liquidity Facility or obtain an Alternate Liquidity Facility to support the remarketing of such series of Variable Rate Series 2005 Bonds while in such different Interest Rate Period, whether or not the City also supplements this Official Statement or delivers a new official statement.

2

Authorization

The Series 2005 Bonds will be issued under the authority granted to the City as a home rule unit of local government under the Illinois Constitution of 1970. The Series 2005 Bonds will be issued pursuant to an ordinance adopted by the City Council of the City on June 8, 2005 (the “2005 Third Lien Bond Ordinance”), and pursuant to a Master Indenture of Trust Securing Chicago O’Hare International Airport Third Lien Obligations, dated as of March 1, 2002, as amended (the “Master Indenture”), between the City and LaSalle Bank National Association, Chicago, Illinois, as trustee (the “Trustee”), as previously supplemented from time to time to provide for the issuance of the Existing Third Lien Bonds, and as further supplemented by and amended by the Eighteenth through and including the Twenty-First Supplemental Indentures, each dated as of December 1, 2005, and each from the City to the Trustee providing for the issuance of a particular series of Series 2005 Bonds, as each such Supplemental Indenture and the related series of Series 2005 Bonds is described in the following table.

Supplemental Indentures and Related Series 2005 Bonds

Supplemental Indenture Related Series 2005 Bonds

Eighteenth Supplemental Indenture Fixed Rate Series 2005A Bonds Nineteenth Supplemental Indenture Variable Rate Series 2005C Bonds Twentieth Supplemental Indenture Fixed Rate Series 2005B Bonds* Twenty-First Supplemental Indenture Variable Rate Series 2005D Bonds

* Denotes refunding series

The Master Indenture as previously supplemented and as further supplemented by the Eighteenth through and including the Twenty-First Supplemental Indenture is collectively referred to as the “Third Lien Indenture.”

Purpose

The City will use a portion of the proceeds from the sale of the Variable Rate Series 2005 Bonds, along with a portion of the proceeds from the sale of the Fixed Rate Series 2005A Bonds, to: (i) fund a portion of the costs of the O’Hare Modernization Program (the “OMP”, as the OMP is further described under the heading “CAPITAL DEVELOPMENT PROGRAMS”) Phase 1 Projects (as defined herein); and (ii) repay the City’s currently outstanding CP Notes. A portion of the proceeds of the Fixed Rate Series 2005A Bonds will be used by the City to pay capitalized interest on the Fixed Rate Series 2005A Bonds and a portion of the proceeds of each series of the Variable Rate Series 2005 Bonds will be used by the City to pay capitalized interest on each such series of the Variable Rate Series 2005 Bonds. Additionally, a portion of the proceeds from the issuance of the Fixed Rate Series 2005B Bonds will be applied by the City to refund all or a portion of certain currently outstanding Airport Obligations. Finally, a portion of the proceeds from each series of the Variable Rate Series 2005 Bonds will be used by the City to pay the costs of issuing the Variable Rate Series 2005 Bonds.

Security for the Variable Rate Series 2005 Bonds

The Variable Rate Series 2005 Bonds constitute Junior Lien Obligations under the General Airport Revenue Bond Ordinance adopted by the City Council of the City on March 31, 1983, as supplemented and amended from time to time (the “General Airport Revenue Bond Ordinance”), and

3

under the Master Indenture of Trust Securing Chicago-O’Hare International Airport Second Lien Obligations, dated as of September 1, 1984, as supplemented and amended (the “Second Lien Indenture”), from the City to J.P. Morgan Trust Company, National Association, Chicago, Illinois (as successor to Bank One National Association), as trustee. The Variable Rate Series 2005 Bonds are payable from amounts that may be withdrawn from the Junior Lien Obligation Debt Service Fund created under the General Airport Revenue Bond Ordinance (the “Junior Lien Revenues”). See “SECURITY FOR THE VARIABLE RATE SERIES 2005 BONDS − Pledge of Third Lien Revenues.” BNY Midwest Trust Company, Chicago, Illinois (as successor in interest to Harris Trust and Savings Bank, Chicago, Illinois), serves as trustee under the General Airport Revenue Bond Ordinance (the “First Lien Trustee”).

For purposes of this Official Statement the term “Third Lien Obligations” refers to all Third Lien

Bonds and other obligations of the City payable from Third Lien Revenues, including any obligations of the City under a Qualified Third Lien Swap Agreement and obligations incurred by any bond insurer or liquidity facility provider or the City to reimburse the issuers of any letters of credit securing one or more series of Third Lien Bonds; the term “Junior Lien Obligations” refers to all Second Lien Obligations, Third Lien Obligations and the CP Notes, together with any other obligations payable from amounts withdrawn from the Junior Lien Obligation Debt Service Fund; the term “Second Lien Obligations” refers to all Second Lien Bonds and other obligations of the City payable from Second Lien Revenues, including any obligations incurred by the City to reimburse the issuers of any letters of credit securing one or more series of Second Lien Bonds; and the term “Airport Obligations” refers to all obligations payable from Revenues, including First Lien Bonds and Junior Lien Obligations.

The Variable Rate Series 2005 Bonds will be secured on a parity basis as to the Third Lien Revenues with the Existing Third Lien Bonds which are currently outstanding in the aggregate principal amount of $2,008,760,000, as well as with the Fixed Rate Series 2005 Bonds which are to be issued as a common plan of finance with the Variable Rate Series 2005 Bonds. Subject to certain requirements set forth in the Third Lien Indenture, the City may issue additional Third Lien Obligations that will be secured on a parity basis with the Series 2005 Bonds and the Existing Third Lien Bonds. The claim of the Variable Rate Series 2005 Bonds to the net revenues of O’Hare is subordinate and junior in right of payment to the claim of the City’s First Lien Bonds and Second Lien Obligations. See “SECURITY FOR THE VARIABLE RATE SERIES 2005 BONDS – Covenants Regarding Issuance of Additional Prior Lien Obligations.”

The City is a party to the Airport Use Agreements (as defined below) with certain airlines serving O’Hare, which Airport Use Agreements are scheduled to expire on May 11, 2018. The Third Lien Indenture does not prohibit the City from terminating the Airport Use Agreements on an earlier date. Upon agreement of the City and the Airline Parties, the Airport Use Agreements may be amended in any manner without the consent of the holders of Third Lien Obligations, including the Variable Rate Series 2005 Bonds. Under the Third Lien Indenture, the City has covenanted to establish rentals, fees and charges for the use and operation of O’Hare in order that Revenues, together with certain other moneys deposited with the Trustee, are sufficient to pay the operation and maintenance expenses at O’Hare and to satisfy the debt service coverage covenants contained in the Third Lien Indenture. See “SECURITY FOR THE VARIABLE RATE SERIES 2005 BONDS – Debt Service Coverage Covenants” and “− Airport Use Agreements.”

There is no provision for acceleration of the maturity of the Variable Rate Series 2005 Bonds if a default occurs in the payment of the principal of or interest on the Variable Rate Series 2005 Bonds or in the performance of any other obligation of the City under the Third Lien Indenture, or if interest on the Variable Rate Series 2005 Bonds becomes includible in the gross income of the owners thereof for federal income tax purposes.

4

Limited Liability

THE VARIABLE RATE SERIES 2005 BONDS WILL NOT BE GENERAL OBLIGATIONS OF THE CITY AND WILL NOT CONSTITUTE AN INDEBTEDNESS OR A LOAN OF CREDIT OF THE CITY WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY LIMITATION, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF ILLINOIS, THE CITY OR ANY OTHER POLITICAL SUBDIVISION OF THE STATE OF ILLINOIS WILL BE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OR PURCHASE PRICE OF OR INTEREST ON THE VARIABLE RATE SERIES 2005 BONDS. THE VARIABLE RATE SERIES 2005 BONDS ARE NOT PAYABLE IN ANY MANNER FROM REVENUES RAISED BY TAXATION. NO PROPERTY OF THE CITY (INCLUDING PROPERTY LOCATED AT O’HARE) IS PLEDGED AS SECURITY FOR THE VARIABLE RATE SERIES 2005 BONDS.

Obligations Subordinate to the Third Lien Obligations

In 2000, the City established a program (the “CP Program”) providing for the issuance, from time to time, of Chicago O’Hare International Airport Commercial Paper Notes in an aggregate principal amount outstanding at any one time of not to exceed $300,000,000. In July 2005, the City replaced its prior CP Program with a new CP Program that provides for the issuance, from time to time, of Chicago O’Hare International Airport Commercial Paper Notes in an aggregate principal amount outstanding at any one time of not to exceed $600,000,000 (the “CP Notes”). The CP Notes are authorized to be issued for the financing and refinancing of a portion of the cost of planning, design, acquisition, construction and equipping of various projects at O’Hare. The CP Notes are subordinate to all other Airport Obligations, including the Series 2005 Bonds and all other Third Lien Obligations, with respect to their claim on Revenues, and may be issued without limit as to amount. There are $389,706,000 CP Notes currently outstanding, all of which are expected to be repaid with proceeds from the Series 2005 Bonds and other available monies.

For a further description of obligations payable or secured from Revenues expressly junior and subordinate to the pledge of Third Lien Revenues to the payment of Third Lien Obligations, see “O’HARE FINANCIAL INFORMATION – Indebtedness.”

Bond Insurance

Upon the issuance of the Variable Rate Series 2005 Bonds, CIFG Assurance North America, Inc. (the “Bond Insurer”) will issue a separate bond insurance policy for each series of the Variable Rate Series 2005 Bonds (collectively, the “Bond Insurance Policies”) to insure the scheduled payment when due of the principal of and interest on the Variable Rate Series 2005 Bonds. See “BOND INSURANCE POLICIES” and APPENDIX G − “SPECIMEN BOND INSURANCE POLICY.”

Liquidity Facilities

The payment of the purchase price of the Variable Rate Series 2005C Bonds that are tendered for purchase and not remarketed may be made, subject to the satisfaction of certain conditions precedent, from amounts made available pursuant to a Standby Bond Purchase Agreement (the “Variable Rate Series 2005C Liquidity Facility”) with DEPFA BANK plc, acting through its New York Branch (the “Series 2005C Liquidity Facility Provider”) and the payment of the purchase price of the Variable Rate Series 2005D Bonds that are tendered for purchase and not remarketed may be made, subject to the satisfaction of certain conditions precedent, from amounts made available pursuant to a Standby Bond Purchase Agreement (the “Variable Rate Series 2005D Liquidity Facility” and, collectively with the Variable Rate Series 2005C Liquidity Facility, the “Liquidity Facilities” and each, a “Liquidity Facility”) with Dexia Credit Local, acting through its New York Branch (the “Series 2005D Liquidity Facility

5

Provider” and, together with the Variable Rate Series 2005C Liquidity Facility Provider, the “Liquidity Facility Providers” and each, a “Liquidity Facility Provider”). Each Liquidity Facility is made among the City, the related Liquidity Facility Provider, the Trustee and the Tender Agent with respect to the related series of Variable Rate Series 2005 Bonds. Under each Liquidity Facility, the related Liquidity Facility Provider is obligated to make available to the Tender Agent, subject to the satisfaction of certain conditions precedent, an amount equal to the principal amount of the related series of Variable Rate Series 2005 Bonds that are tendered plus up to 34 days interest at an assumed interest rate of 12%. Each Liquidity Facility secures only the payment of the purchase price of the related series of Variable Rate Series 2005 Bonds tendered for purchase as described herein; does not otherwise secure payment of the principal of or interest on the Variable Rate Series 2005 Bonds of such series; and may be suspended or terminated, without notice, in certain circumstances. For a more detailed description of the Liquidity Facilities, see “THE INITIAL LIQUIDITY FACILITIES” herein.

Certain Rights of Bond Insurer and Liquidity Facility Providers

Pursuant to the Third Lien Indenture, the Bond Insurer will be deemed to be the sole Owner of the Variable Rate Series 2005 Bonds insured by it for purposes of, among other things, approving amendments to the Master Indenture (other than certain amendments that require the consent of each affected Owner or the consent of the Trustee), exercising remedies upon the occurrence of a default under the Master Indenture, providing specific approvals, consents or waivers or instruments of similar purpose, and to the extent the Bond Insurer is deemed to be the sole Owner for such purposes, the rights of the Owners of the Third Lien Obligations shall be abrogated. In addition, the Liquidity Facilities provide the Liquidity Facility Providers with certain approval, consent and waiver rights with respect to certain actions that the City is authorized to take under the Third Lien Indenture.

Additionally, the Bond Insurer has reserved the right, in endorsements to its Bond Insurance Policies securing the Variable Rate Series 2005 Bonds, to assign its obligations under either Bond Insurance Policy to an affiliate that is a licensed financial guaranty insurance corporation, provided that (a) at the time of such assignment the insurance strength or insurance financial strength of such affiliate is rated at least equal to the insurance strength or insurance financial strength of the Bond Insurer; (b) the rating of the Variable Rate Series 2005 Bonds covered by such Bond Insurance Policy would not be reduced or withdrawn as a result of such assignment by any of Fitch, Moody’s or S&P; (c) at least 90 days’ prior written notice thereof has been provided by the Bond Insurer to the City, the Trustee, the Remarketing Agent and the Liquidity Facility Provider; (d) the prior written consent of the City and the Liquidity Facility Provider has been obtained, which consent will not be unreasonably withheld; and (e) the Trustee has provided not less than 30 days prior written notice to the Holders. Absent compliance with the foregoing, such Bond Insurance Policies shall not be assignable by the Bond Insurer. See APPENDIX B – “SUMMARY OF CERTAIN PROVISIONS OF THE THIRD LIEN INDENTURE – Rights of the Bond Insurer.”


O’Hare is the primary commercial airport for the City. O’Hare occupies approximately 7,000 acres of land and is located 18 miles northwest of the City’s central business district. According to statistics compiled by Airports Council International (“ACI”), in 2004 O’Hare was the busiest airport in the world, measured in terms of total operations, and the second busiest in terms of total passengers. According to the Department of Aviation of the City (“DOA”), O’Hare had 37,444,548 enplaned passengers in 2004, a record high for the Airport, and 34,433,532 enplaned passengers in 2003. United Airlines and American Airlines each maintain a hub at O’Hare. United Airlines (including its regional/commuter partners operating as United Express) accounted for 48.5 percent of the enplaned passengers at O’Hare in 2004 and 50.0 percent of the enplaned passengers in 2003. American Airlines (including American Eagle, its regional/commuter partner) accounted for 36.4 percent of the enplaned passengers at O’Hare in 2004 and 34.5 percent of the enplaned passengers in 2003. See “CHICAGO

6

O’HARE INTERNATIONAL AIRPORT” and “OPERATIONS AT O’HARE.” United Airlines currently is operating under the protection of Chapter 11 of the United States Bankruptcy Code. See “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY, AND O’HARE.”

O’Hare Modernization Program

In 2001, the City announced the OMP to meet the future development needs at O’Hare. The OMP was designed to address flight delays and to increase capacity. The OMP is a comprehensive program providing for the reconfiguration of the airfield as well as construction of a new passenger terminal, accompanying access/circulation systems and necessary support facilities. The OMP was developed to be implemented in phases over a multi-year period.

Major functional components of the OMP include adding one new runway and relocating three of the seven existing runways. Two of the existing runways are to be extended. The OMP also includes constructing an airside concourse and a western terminal having approximately 1.5 million square feet of space and approximately 60 gates, parking facilities, a people mover system, access roads and other related projects. In addition, the OMP provides for all necessary noise mitigation and land acquisition. For additional information regarding the OMP see “CAPITAL DEVELOPMENT PROGRAMS.”

Regional Airport Oversight

The City operates O’Hare and Chicago Midway International Airport (“Midway”) through the DOA. See “CHICAGO O’HARE INTERNATIONAL AIRPORT − Other Commercial Service Airports Serving the Chicago Region.” In April 1995, the City and the City of Gary, Indiana entered into an interstate compact (the “Compact”) establishing the Chicago-Gary Regional Airport Authority (the “Chicago-Gary Authority”) with respect to the relationship among O’Hare, Midway, Merrill C. Meigs Field* (“Meigs Field”) and the Gary/Chicago International Airport, formerly the Gary Regional Airport (the “Gary/Chicago International Airport”). See “CHICAGO O’HARE INTERNATIONAL AIRPORT − Regional Authority.”

The Report of the Airport Consultant

In connection with the sale and issuance of the Series 2005 Bonds, Ricondo & Associates, Inc., Chicago, Illinois (the “Airport Consultant”), has delivered a report, a copy of which is included as APPENDIX E (the “Report of the Airport Consultant”). The Report of the Airport Consultant evaluates historical aviation activity and financial results at O’Hare, forecasts future aviation activity at O’Hare under both a “base projection” air traffic forecast and a “sensitivity projection” that takes into account the impact on O’Hare from a hypothetical cessation of activity at O’Hare by United Airlines, and provides a financial feasibility analysis under both projections for the facility. The Report of the Airport Consultant was prepared based on certain assumptions which are set forth therein, including assumed debt service on the Series 2005 Bonds and additional Airport Obligations expected to be issued in the future to refund outstanding airport indebtedness and to provide for the financing of capital improvements at O’Hare, including, but not limited to, Phase 1 of the O’Hare Modernization Program (“OMP-Phase 1”). The Report of the Airport Consultant is described more fully herein under the caption “REPORT OF THE AIRPORT CONSULTANT.”

The Report of the Airport Consultant should be read in its entirety for a complete understanding of the projections and underlying assumptions. As noted below under “–General – Forward Looking Statements,” any projection is subject to uncertainties, including the possibility that some of the _________________________________________________ * Meigs Field was closed in 2003.

7

assumptions used to develop the projections will not be realized and that unanticipated events and circumstances could occur. Accordingly, there are likely to be differences between the projections and actual results, and such differences could be material. See APPENDIX E – “REPORT OF THE AIRPORT CONSULTANT.”

General

Forward-Looking Statements. All statements other than statements of historical facts included in this Official Statement are forward-looking statements, including, without limitation: (a) statements concerning projections of future passenger activity at O’Hare and of future financial performance of O’Hare (see APPENDIX E – “REPORT OF THE AIRPORT CONSULTANT”); (b) statements of the plans and objectives of the City in relation to the Capital Development Programs (as defined below) (see “CHICAGO O’HARE INTERNATIONAL AIRPORT,” “OPERATIONS AT O’HARE,” and “CAPITAL DEVELOPMENT PROGRAMS”); and (c) assumptions relating to the statements described in clauses (a) and (b) above (collectively, the “Forward-Looking Statements”).

Although the City believes that the expectations reflected in the Forward-Looking Statements are reasonable, there is no assurance that these expectations will be achieved. Important factors that could cause actual results to differ materially from the current expectations of the City are discussed in this Official Statement.

Glossary of Terms; Document Summaries. This Official Statement contains summaries of the terms of and security for the Variable Rate Series 2005 Bonds, together with descriptions of O’Hare and its operations. A Glossary of Terms is included as APPENDIX A, a summary of certain provisions of the Third Lien Indenture is included as APPENDIX B and a summary of certain provisions of the Airport Use Agreements is included as APPENDIX C. All references herein to agreements and documents are qualified in their entirety by references to the definitive forms of the agreement or document. All references to the Variable Rate Series 2005 Bonds are further qualified by references to the information with respect to them contained in the Third Lien Indenture.

PLAN OF FINANCE

The Variable Rate Series 2005 Bonds, along with the Fixed Rate Series 2005A Bonds, are being issued as part of a common plan of financing to pay a portion of the costs of the planning, design and acquisition of certain capital projects at O’Hare included within OMP-Phase 1 and to repay the City’s currently outstanding CP Notes. A portion of the proceeds of the Fixed Rate Series 2005B Bonds will be used by the City to refund all or a portion of certain currently outstanding Airport Obligations. A portion of the proceeds from the Fixed Rate Series 2005A Bonds will be applied to pay capitalized interest on the Fixed Rate Series 2005A Bonds and a portion of the proceeds of each series of the Variable Rate Series 2005 Bonds will be used by the City to pay capitalized interest on each series of the Variable Rate Series 2005 Bonds. Proceeds from both series of the Variable Rate Series 2005 Bonds will be used to pay costs of issuance of the Variable Rate Series 2005 Bonds.

8

Refunding Plan

A portion of the net proceeds of the Fixed Rate Series 2005B Bonds will be applied to the refunding of the following outstanding General Airport Revenue Bonds or General Airport Revenue Refunding Bonds of the City (the “Prior Bonds”).

Bonds

to be Refunded

Maturity of Bonds to be Refunded

(January 1)

Principal Amount of Bonds to be

Refunded General Airport Revenue Refunding Bonds, 1993 Series A 2016 $141,850,000 General Airport Second Lien Revenue Refunding Bonds, 1993 Series C

2018

$120,590,000

The Prior Bonds shall be redeemed at par plus accrued interest on January 27, 2006.

To provide for the refunding and redemption of the Prior Bonds, certain Federal Obligations permitted under the General Airport Revenue Bond Ordinance and the Second Lien Indenture, as appropriate, will be purchased with proceeds from the Fixed Rate Series 2005B Bonds and certain other monies. The principal and interest on such Federal Obligations will be applied, together with certain other funds, to the payment of the principal of, redemption price, if applicable, and interest on the Prior Bonds.

The Federal Obligations and other funds held for the payment of the principal and redemption price of and the interest on the Prior Bonds, as described above, will not serve as security or be available for the payment of debt service on the Variable Rate Series 2005 Bonds.

Following the issuance of the Variable Rate Series 2005 Bonds, and the Fixed Rate Series 2005 Bonds, and the refunding of the Prior Bonds, First Lien Bonds will remain outstanding in the aggregate principal amount of $117,975,000, maturing on January 1 of the years 2006 through 2016 and Second Lien Bonds will remain outstanding in the aggregate principal amount of $805,980,000, maturing on January 1 of the years 2006 through 2018.

Capitalized Interest

A portion of the proceeds from the Variable Rate Series 2005 Bonds will be used to pay a portion of the interest expense on some of the Variable Rate Series 2005 Bonds through January 1, 2011.

Repayment of CP Notes

A portion of the proceeds of the Series 2005 Bonds, along with certain other monies, will be used to repay the City’s outstanding CP Notes, plus accrued interest.

9

SOURCES AND USES OF FUNDS

The following table sets forth the estimated sources and uses of funds in connection with the issuance of Fixed Rate Series 2005 Bonds and the Variable Rate Series 2005 Bonds and the implementation of the Plan of Finance described above.

SOURCES OF FUNDS Variable Rate Series 2005C

Bonds(1)

Variable Rate Series 2005D

Bonds

Fixed Rate Series 2005

Bonds

Total Par Amount of Bonds $ 200,000,000 $ 100,000,000 $1,200,000,000 $1,500,000,000 Net Original Issue Premium 61,147,696 61,147,696 Other Available Funds 14,653,500 14,653,500 Total Sources of Funds $ 200,000,000 $ 100,000,000 $1,275,801,196 $1,575,801,196

USES OF FUNDS

Deposit to Project Account $104,789,925 $52,368,827 483,536,135 640,694,887 Capitalized Interest on Series 2005 Bonds 32,090,099 16,045,050 193,445,292 241,580,441 Refunding of Prior Bonds (First Lien Bonds) 145,908,536 145,908,536 Refunding of Prior Bonds (Second Lien Bonds) 124,040,264 124,040,264 Repayment of CP Notes 59,969,641 29,984,820 301,288,035 391,242,496 Costs of Issuance(2) 3,150,335 1,601,303 27,582,934 32,334,572 Total Uses of Funds(3) $ 200,000,000 $ 100,000,000 $1,275,801,196 $1,575,801,196

____________________ (1) City plans to issue the Fixed Rate Series 2005 Bonds, along with the Variable Rate Series 2005 Bonds as part of a common plan of financing.

The Fixed Rate Series 2005 Bonds are described in a separate official statement. (2) Includes Underwriters’ Discount, premiums for insurance and surety bonds, and other costs of issuance. (3) Columns may not add due to rounding.

THE VARIABLE RATE SERIES 2005 BONDS

General

Each series of the Variable Rate Series 2005 Bonds initially will bear interest at a Weekly Interest Rate as described below under “Determination of the Weekly Interest Rate” unless and until, at the direction of the City and upon compliance with the conditions set forth in the Third Lien Indenture, the Variable Rate Series 2005 Bonds of a series are converted to bear interest from time to time at a Daily Interest Rate, Bond Interest Term Rate, Long Term Interest Rate or Auction Rate (each, an “Interest Rate Period”). It is not a requirement that both series of Variable Rate Series 2005 Bonds be in the same interest rate mode at the same time.

This Official Statement summarizes certain terms of each series of Variable Rate Series 2005 Bonds only while the Variable Rate Series 2005 Bonds of such series bear interest at a Weekly Interest Rate. Should the Variable Rate Series 2005 Bonds of a series be converted to a different Interest Rate Period, the Variable Rate Series 2005 Bonds of such series will be subject to mandatory tender and purchase and, at that time, it is expected that a new official statement or other disclosure document will be prepared with respect to such series.

The Variable Rate Series 2005C Bonds will (i) mature on January 1, 2035, subject to prior redemption as described herein under “Redemption Provisions” and subject to optional and mandatory tender for purchase as described herein under “Tender and Purchase of Variable Rate Series 2005 Bonds,” (ii) be dated the date of their issuance, and (iii) bear interest from that date until paid. As long as the Variable Rate Series 2005C Bonds bear interest at a Weekly Interest Rate, interest will be computed on the basis of a 365- or 366-day year for the actual days elapsed.

The Variable Rate Series 2005D Bonds will (i) mature on January 1, 2035, subject to prior redemption as described herein under “Redemption Provisions” and subject to optional and mandatory tender for purchase as described herein under “Tender and Purchase of Variable Rate Series 2005 Bonds,” (ii) be dated the date of their issuance, and (iii) bear interest from that date until paid. As long as the

10

Variable Rate Series 2005D Bonds bear interest at a Weekly Interest Rate, interest will be computed on the basis of a 365- or 366-day year for the actual days elapsed.

The Variable Rate Series 2005 Bonds will be issued only as fully registered bonds in denominations of $100,000 and integral multiples of $5,000 in excess of $100,000 (each, an “Authorized Denomination”). The principal and Tender Price of and interest on the Variable Rate Series 2005 Bonds will be payable in lawful money of the United States of America. Such amounts will be paid by the Trustee on the applicable Payment Dates by wire transfer of immediately available funds to the respective holders thereof on the applicable Record Date to an account specified by the holder thereof in writing delivered to the Trustee.

The Variable Rate Series 2005 Bonds will be initially registered through a book-entry only system operated by The Depository Trust Company, New York, New York (“DTC”). Details of payments of the Variable Rate Series 2005 Bonds when in the book-entry form and the book-entry only system are described below under the subcaption “–Book-Entry Only System.” Except as described under the subcaption “–Book-Entry Only System” below, beneficial owners of the Variable Rate Series 2005 Bonds will not receive or have the right to receive physical delivery of the Variable Rate Series 2005 Bonds, and will not be or be considered under the Third Lien Indenture to be the Registered Owners thereof. Accordingly, beneficial owners must rely upon (i) the procedures of DTC and, if such beneficial owner is not a DTC Participant (defined below), the DTC Participant who will act on behalf of such beneficial owner to receive notices and payments of principal and interest on the Variable Rate Series 2005 Bonds, and to exercise voting rights, and (ii) the records of DTC and, if such beneficial owner is not a DTC Participant, such beneficial owner’s DTC Participant, to evidence its beneficial ownership of Variable Rate Series 2005 Bonds. As long as DTC or its nominee is the Registered Owner of Variable Rate Series 2005 Bonds, references herein to Bondholders or Registered Owners of such Variable Rate Series 2005 Bonds shall mean DTC or its nominee and shall not mean the beneficial owners of such Variable Rate Series 2005 Bonds. The laws of some states may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and laws may impair the ability to transfer beneficial interests in a Variable Rate Series 2005 Bond.

Citigroup Global Markets Inc. has been appointed as the initial Remarketing Agent for the Variable Rate Series 2005 Bonds and will serve in such capacity for a fee. The principal office of the initial Remarketing Agent is at 390 Greenwich Street, 5th Floor, New York, New York 10013, Attention: Short-Term Tax-Exempt Trading. See “REMARKETING AGREEMENT.”

Rights of the Bond Insurer and Liquidity Facility Providers

The Third Lien Indenture grants the Bond Insurer and the Liquidity Facility Providers certain approval, consent and waiver rights with respect to certain actions that the City is authorized to take under the Indenture. In addition, the Third Lien Indenture recognizes the right of the Bond Insurer to assign its obligations under each Bond Insurance Policy to an affiliate upon its compliance with certain conditions as set forth in the Third Lien Indenture. See APPENDIX B – “SUMMARY OF CERTAIN PROVISIONS OF THE THIRD LIEN INDENTURE – Rights of the Bond Insurer.”

Interest

While a series of Variable Rate Series 2005 Bonds bears interest at a Weekly Interest Rate, interest on the Variable Rate Series 2005 Bonds of such series will be payable monthly in arrears on the first Business Day of each month, commencing January 3, 2006.

Interest on the Variable Rate Series 2005 Bonds will be payable on each Interest Payment Date for the period commencing on the immediately preceding Interest Payment Date and ending on the day immediately preceding the Interest Payment Date (or, if sooner, the last day of the Weekly Interest Rate

11

Period). In any event, interest on the Variable Rate Series 2005 Bonds will be payable for the final Interest Rate Period to the date on which the Variable Rate Series 2005 Bonds have been paid in full.

At no time will any Variable Rate Series 2005 Bonds bear interest at a Weekly Interest Rate that is in excess of the Maximum Bond Interest Rate, except that the interest rate paid by the City on Bank Bonds pursuant to any Liquidity Facility or agreement providing for a Liquidity Facility shall not exceed the Maximum Bank Bond Interest Rate.

Determination of the Weekly Interest Rate

During each Weekly Interest Rate Period, the Variable Rate Series 2005 Bonds will bear interest at the Weekly Interest Rate, which will be determined by the Remarketing Agent by 5:00 p.m., New York City time, on Tuesday of each week during such Weekly Interest Rate Period, or if such day is not a Business Day, then on the next succeeding Business Day. The first Weekly Interest Rate determined for each Weekly Interest Rate Period will be determined on or prior to the first day of such Weekly Interest Rate Period and will apply to the period commencing on the first day of such Weekly Interest Rate Period and ending on the next succeeding Tuesday. Thereafter, each Weekly Interest Rate will apply to the period commencing on Wednesday and ending on and including the next succeeding Tuesday, unless such Weekly Interest Rate Period will end on a day other than Tuesday, in which event the last Weekly Interest Rate for such Weekly Interest Rate Period will apply to the period commencing on Wednesday preceding the last day of such Weekly Interest Rate Period and ending on the last day of such Weekly Interest Rate Period.

Each Weekly Interest Rate with respect to a series of Variable Rate Series 2005 Bonds will be the rate of interest per annum determined by the Remarketing Agent for such series of Variable Rate Series 2005 Bonds (based on the examination of tax-exempt obligations comparable, in the judgment of the Remarketing Agent, to such series of Variable Rate Series 2005 Bonds and known by the Remarketing Agent to have been priced or traded under then prevailing market conditions) to be the minimum interest rate that, if borne by such series of Variable Rate Series 2005 Bonds, would enable the Remarketing Agent to sell all the Variable Rate Series 2005 Bonds of such series on the effective date of that rate at a price (without regarding accrued interest) equal to the principal amount thereof. Each series of the Variable Rate Series 2005 Bonds may bear different Weekly Interest Rates as a result of, among other things, the different Liquidity Facility Providers providing liquidity support with respect thereto.

Failure to Determine Interest Rate

If the Remarketing Agent fails to establish a Weekly Interest Rate for any week with respect to a series of Variable Rate Series 2005 Bonds bearing interest at such rate, then the Weekly Interest Rate for such week with respect to such series of Variable Rate Series 2005 Bonds will be the same as the immediately preceding Weekly Interest Rate for such series if the Weekly Interest Rate was determined by the Remarketing Agent. If the immediately preceding Weekly Interest Rate for such series was not determined by the Remarketing Agent, or if the Weekly Interest Rate for such series determined by the Remarketing Agent is held to be invalid or unenforceable by a court of law, then the Weekly Interest Rate for such series for such week will be equal to 110% of the BMA Index, which means on any date, a rate determined on the basis of the seven-day high grade market index of tax-exempt variable rate demand obligations, as produced by Municipal Market Data and published or made available by the Bond Market Association (“BMA”), or if such index is no longer made available, 85% of the interest rate on 30-day high grade unsecured commercial paper notes sold through dealers by major corporations as reported in The Wall Street Journal on the day such Weekly Interest Rate would otherwise be determined as provided in the Third Lien Indenture for such Weekly Interest Rate Period.

12

Conversion of Interest Rates on Variable Rate Series 2005 Bonds

Conversion from Weekly Interest Rate. The City may, from time to time, by written direction to the Trustee, the Tender Agent, the Liquidity Facility Provider, and the Remarketing Agent, elect that the interest rate on either series of Variable Rate Series 2005 Bonds bearing interest at a Weekly Interest Rate be converted to a Daily Interest Rate, a Long-Term Interest Rate, Bond Interest Term Rate or Auction Rate upon satisfaction of certain conditions set forth in the Third Lien Indenture. It is not required that both series of Variable Rate Series 2005 Bonds be in the same Interest Rate Period at the same time.

If the Interest Rate Period for a series of Variable Rate Series 2005 Bonds is to be converted from the Weekly Interest Rate, then the Variable Rate Series 2005 Bonds of such series will be subject to mandatory tender for purchase on the effective date of the conversion to another Interest Rate Period, at a purchase price equal to the principal amount thereof, without premium, plus accrued interest (if any) from the immediately preceding Interest Accrual Date to the effective date of the conversion (the “Tender Price”). The Third Lien Indenture provides that the Trustee is required to give notice of any conversion to another Interest Rate Period to the holders of the affected series of the Variable Rate Series 2005 Bonds not less than 30 days prior to the proposed effective date of such conversion.

Certain Conditions to Conversion of Interest Rates on Variable Rate Series 2005 Bonds. Notwithstanding anything contained in the Third Lien Indenture to the contrary, in connection with any conversion of the Interest Rate Period on a series of Variable Rate Series 2005 Bonds, the City will cause to be provided to the Trustee, the related Liquidity Facility Provider and the Remarketing Agent, a Favorable Opinion of Bond Counsel on the effective date of such conversion. If Bond Counsel fails to deliver a Favorable Opinion of Bond Counsel on any such date, or if any of the other conditions precedent set forth in the Third Lien Indenture to the Conversion of a series of Variable Rate Series 2005 Bonds shall not have been satisfied, then the Interest Rate Period on such series of Variable Rate Series 2005 Bonds, will not be converted, and the Variable Rate Series 2005 Bonds of such series will continue to bear interest for a Weekly Interest Rate Period as in effect immediately prior to such proposed conversion of the Interest Rate Period.

In any event, if Bond Counsel fails to deliver a Favorable Opinion of Bond Counsel on the effective date of the proposed conversion, or if any of the other conditions precedent set forth in the Third Lien Indenture to the Conversion of a series of Variable Rate Series 2005 Bonds shall not have been satisfied, the affected series of Variable Rate Series 2005 Bonds will continue to be subject to mandatory purchase on the date which would have been the effective date of such conversion as provided in the Third Lien Indenture.

The City may rescind its election to convert the Interest Rate Period for a series of Variable Rate Series 2005 Bonds from the Weekly Interest Rate Period by delivering a rescission notice to the Trustee, the Remarketing Agent, the Tender Agent, the related Liquidity Facility Provider, and the related Bond Insurer on or prior to 10:00 a.m., New York City time, on the second Business Day preceding the proposed effective date of the conversion. However, if a notice of the proposed conversion has been given to the holders of a series of Variable Rate Series 2005 Bonds and the City rescinds its election to make such Conversion, then the Variable Rate Series 2005 Bonds of such series will continue to be subject to mandatory tender for purchase on the date which would have been the effective date of the Conversion as provided in the Third Lien Indenture.

Tender and Purchase of Variable Rate Series 2005 Bonds

The current Liquidity Facilities only cover purchases of each series of Variable Rate Series 2005 Bonds while the Variable Rate Series 2005 Bonds of such series bear interest at a Weekly Interest Rate or a Daily Interest Rate. If the Variable Rate Series 2005 Bonds of a series are converted to an Interest Rate Period other than a Weekly Interest Rate Period or a Daily Interest Rate Period, the City will be required either (a) to amend the applicable existing Liquidity Facility so that it would also cover the purchase of

13

Variable Rate Series 2005 Bonds tendered for payment while bearing interest at such other rates, or (b) to obtain an Alternate Liquidity Facility which would cover the purchase of Variable Rate Series 2005 Bonds tendered for payment while bearing interest at such other rates.

UPON THE OCCURRENCE AND CONTINUANCE OF CERTAIN EVENTS UNDER EITHER OF THE LIQUIDITY FACILITIES THE OBLIGATION OF EACH LIQUIDITY FACILITY PROVIDER TO PURCHASE VARIABLE RATE SERIES 2005 BONDS OF THE SERIES FOR WHICH IT IS PROVIDING THE APPLICABLE LIQUIDITY FACILITY WILL BE IMMEDIATELY TERMINATED OR SUSPENDED, IN EITHER CASE WITHOUT PRIOR NOTICE TO HOLDERS OF THE APPLICABLE SERIES OF VARIABLE RATE SERIES 2005 BONDS. See “INITIAL LIQUIDITY FACILITIES – Remedies.”

The following information, including, without limitation, the manner of exercising mandatory and optional tender rights, is subject in its entirety to the provisions described below under the subcaption “– Book-Entry Only System” while the Variable Rate Series 2005 Bonds are in the Book-Entry Only System.

THE THIRD LIEN INDENTURE PROVIDES THAT AS LONG AS CEDE & CO. IS THE SOLE REGISTERED OWNER OF THE VARIABLE RATE SERIES 2005 BONDS, ALL TENDERS AND DELIVERIES OF VARIABLE RATE SERIES 2005 BONDS UNDER THE PROVISIONS OF THE THIRD LIEN INDENTURE SHALL BE MADE PURSUANT TO DTC’S PROCEDURES AS IN EFFECT FROM TIME TO TIME, AND NONE OF THE CITY, THE LIQUIDITY FACILITY PROVIDERS, THE TRUSTEE OR THE REMARKETING AGENT SHALL HAVE ANY RESPONSIBILITY FOR OR LIABILITY WITH RESPECT TO THE IMPLEMENTATION OF SUCH PROCEDURES.

Tender for Purchase Upon Election of Holder During Weekly Interest Rate Period. During any Weekly Interest Rate Period, any Variable Rate Series 2005 Bond (other than a Bank Bond or a City Bond) bearing interest at the Weekly Interest Rate will be purchased in an Authorized Denomination (provided that the amount not to be purchased will also be in an Authorized Denomination) from the Holder thereof at the option of such Holder on any Business Day at a purchase price equal to the Tender Price, payable in immediately available funds, upon delivery of an irrevocable written notice to the Tender Agent at its Principal Office for delivery of the Variable Rate Series 2005 Bonds, to the Trustee at its Principal Office and to the Remarketing Agent, which notice states the principal amount of such Variable Rate Series 2005 Bond, the principal amount thereof to be purchased and the date on which the same will be purchased, which date must be a Business Day at least seven days after the date of the delivery of such notice to the Tender Agent. Any notice delivered to the Tender Agent after 4:00 p.m., New York City time, will be deemed to have been received on the next succeeding Business Day.

During any Weekly Interest Rate Period for which the book-entry-only system described in the Third Lien Indenture is in effect, any Variable Rate Series 2005 Bonds bearing interest at the Weekly Interest Rate or portion thereof (provided that the principal amount of such Variable Rate Series 2005 Bonds to be purchased and the principal amount to be retained shall each be an Authorized Denomination) shall be purchased on the date specified in the notice hereinafter described at the Tender Price. The irrevocable written notice, executed by the Participant, shall be delivered on any Business Day by the Participant for such Variable Rate Series 2005 Bonds to the Tender Agent at its Principal Office for the delivery of such Bonds, to the Trustee at its Principal Office and to the Remarketing Agent. That notice shall state the principal amount of such Variable Rate Series 2005 Bonds (or interest therein), the portion thereof to be purchased and the date on which the same shall be purchased, which date shall be a Business Day at least seven days after the date of delivery of such notice to the Trustee. Upon confirmation by the Securities Depository to the Trustee that such Participant has an ownership interest in the Variable Rate Series 2005 Bonds at least equal to the amount of Variable Rate Series 2005 Bonds specified in such irrevocable written notice, payment of the Tender Price of such Variable Rate Series

14

2005 Bonds shall be made by 3:00 p.m., New York City time, or as soon as practicably possible thereafter, upon the receipt by the Trustee of the Tender Price on the Business Day specified in the notice upon the transfer on the registration books of the Securities Depository of the beneficial ownership interest in such Variable Rate Series 2005 Bonds tendered for purchase to the account of the Tender Agent, or a Participant acting on behalf of such Tender Agent, at or prior to 10:00 a.m., New York City time, on the date specified in such notice.

Mandatory Tender for Purchase Upon Conversion to a Different Interest Rate Period. All Variable Rate Series 2005 Bonds of a series will be subject to mandatory tender for purchase on the effective date of a conversion to a different Interest Rate Period for such series of Variable Rate Series 2005 Bonds, or on the day which would have been the effective date of such a conversion to a new Interest Rate Period had certain events described in the Third Lien Indenture not occurred which resulted in the interest rate determination method on such series of Variable Rate Series 2005 Bonds not being converted, at a purchase price, payable in immediately available funds, equal to the Tender Price. For payment of the Tender Price on the Tender Date, a Variable Rate Series 2005 Bond must be delivered at or prior to 10:00 a.m., New York City time, on the Tender Date. If delivery is made after that time, the Tender Price shall be paid on the next succeeding Business Day.

Mandatory Tender for Purchase upon Termination, Replacement or Expiration of a Liquidity Facility; Mandatory Standby Tender. If at any time the Variable Rate Series 2005 Bonds of a series secured by a Liquidity Facility shall cease to be subject to purchase pursuant to such Liquidity Facility as a result of (i) the termination, replacement or expiration of the term, as extended, of that Liquidity Facility, including, but not limited to, termination at the option of the City in accordance with the terms of such Liquidity Facility, or (ii) the occurrence of a Mandatory Standby Tender, then each Variable Rate Series 2005 Bond of such series shall be purchased or deemed purchased at the Tender Price. In the case of any replacement of an existing Liquidity Facility, the existing Liquidity Facility will be drawn to pay the Tender Price, if necessary, rather than the Alternate Liquidity Facility.

Any purchase of a Variable Rate Series 2005 Bond under the circumstances described in the preceding paragraph will occur: (i) on the fifth Business Day preceding any such expiration or termination of such Liquidity Facility without replacement with an Alternate Liquidity Facility or upon any termination thereof as a result of a Mandatory Standby Tender, and (ii) on the date of the replacement of a Liquidity Facility, in any case where an Alternate Liquidity Facility has been delivered to the Tender Agent. “Mandatory Standby Tender” means the mandatory tender of the Variable Rate Series 2005 Bonds upon receipt by the Trustee of written notice from the Liquidity Facility Provider that an event with respect to the Liquidity Facility has occurred which requires or gives the Liquidity Facility Provider the option to terminate such Liquidity Facility upon notice. A Mandatory Standby Tender does not include circumstances in which the Liquidity Facility Provider may suspend or terminate its obligations to purchase securities without notice, in which case there will be no mandatory tender of the Variable Rate Series 2005 Bonds.

The Trustee is required to give notice by mail to the holders of the Variable Rate Series 2005 Bonds secured by a Liquidity Facility (i) on or before the 30th day preceding the replacement, termination or expiration of such Liquidity Facility (except in the case of a termination resulting from an event resulting in the immediate termination or suspension of the obligation of the Liquidity Facility Provider to purchase the Variable Rate Series 2005 Bonds under the terms of any Liquidity Facility) in accordance with its terms, or (ii) in the case of any Mandatory Standby Tender under such Liquidity Facility, as soon as reasonably possible, but no later than the Business Day following the receipt by the Trustee of notice of the Mandatory Standby Tender. The notice must be accompanied by directions for the purchase of the Variable Rate Series 2005 Bonds. Among other things, the notice must state the date of the termination or expiration of the affected Liquidity Facility and in the case of replacement the date of the proposed substitution of an Alternate Liquidity Facility (if any) and state that the Variable Rate Series 2005 Bonds will be purchased as a result of such replacement, termination or expiration, including any termination as

15

a result of a Mandatory Standby Tender and the date on which such purchase will occur, and will also provide any other information required in the notice to the Holders of the Variable Rate Series 2005 Bonds.

Irrevocable Notice Deemed to be Tender of Variable Rate Series 2005 Bonds. The giving of notice by a Holder of a Variable Rate Series 2005 Bond of its election to have its Variable Rate Series 2005 Bond purchased during a Weekly Interest Rate Period applicable to such Variable Rate Series 2005 Bond will constitute the irrevocable tender for purchase of such Variable Rate Series 2005 Bond with respect to which such notice is given, regardless of whether such Variable Rate Series 2005 Bond is delivered to the Tender Agent for purchase on the relevant Tender Date.

Undelivered Variable Rate Series 2005 Bonds. If any Holder of a Variable Rate Series 2005 Bond who has given notice of tender for purchase as described in the preceding paragraph fails to deliver such Variable Rate Series 2005 Bond to the Tender Agent at the place and on the Tender Date and at the time specified, or fails to deliver such Variable Rate Series 2005 Bond properly endorsed, such Variable Rate Series 2005 Bond will constitute an Undelivered Bond. If funds in the amount of the purchase price of the Undelivered Bond are available for payment to the Holder thereof on the Tender Date and at the time specified, then from and after the Tender Date and time of that required delivery: (i) the Undelivered Bond will be deemed to be purchased and will no longer be deemed to be Outstanding under the Third Lien Indenture; (ii) interest will no longer accrue thereon; and (iii) funds in the amount of the Tender Price of the Undelivered Bond will be held uninvested by the Trustee for the benefit of the Holder thereof (provided that the Holder will have no right to any investment proceeds derived from such funds), to be paid on delivery (and proper endorsement) of such Undelivered Bond to the Tender Agent at its Principal Office for delivery of the Variable Rate Series 2005 Bonds. The Tender Agent may refuse to accept delivery of any Variable Rate Series 2005 Bond for which a proper instrument of transfer has not been provided; such refusal, however, will not affect the validity of the purchase of such Variable Rate Series 2005 Bond as described in the Third Lien Indenture.

Payment of Tender Price. For payment of the Tender Price of any Variable Rate Series 2005 Bond required to be purchased as provided in the Third Lien Indenture on the Tender Date specified in the applicable notice, such Variable Rate Series 2005 Bond must be delivered, at or prior to 10:00 a.m., New York City time, on the Tender Date, to the Tender Agent at its Principal Office for delivery of the Variable Rate Series 2005 Bonds, accompanied by an instrument of transfer thereof, in form satisfactory to the Tender Agent, executed in blank by the Holder thereof or its duly authorized attorney, with such signature guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange.

Delivery of Tender Notices and Tendered Variable Rate Series 2005 Bonds. Notices in respect of tenders for purchase at the election of Holders during a Weekly Interest Rate Period must be delivered to the Trustee, the Tender Agent and Remarketing Agent.

Book-Entry Tender and Delivery Procedures. Notwithstanding anything to the contrary contained in the Third Lien Indenture, for as long as DTC’s nominee is the sole registered owner of the Variable Rate Series 2005 Bonds, all tenders for purchase and deliveries of Variable Rate Series 2005 Bonds tendered for purchase or subject to mandatory tender under the provisions of the Third Lien Indenture will be made pursuant to the Securities Depository’s procedures as in effect from time to time and neither the City, the Tender Agent, the Trustee nor the Remarketing Agent will have any responsibility for or liability with respect to the implementation of such procedures.

Source of Funds for Purchase of Tendered Bonds

On the date on which Tendered Bonds are required to be purchased pursuant to the Third Lien Indenture, the Trustee will purchase such Tendered Bonds from the Holders thereof on the Tender Date at

16

the Tender Price. Funds for the payment of the Tender Price will be derived solely from the following sources in the order of priority indicated:

(a) proceeds of the sale of the Variable Rate Series 2005 Bonds of the related series remarketed by the Remarketing Agent;

(b) moneys received from draws on the related Liquidity Facility; and

(c) moneys, if any, provided to the Tender Agent by the City, at its option, for payment of such Variable Rate Series 2005 Bonds.

UNDER CERTAIN CIRCUMSTANCES, AN EVENT OF DEFAULT UNDER A LIQUIDITY FACILITY MAY PERMIT THE RELATED LIQUIDITY FACILITY PROVIDER TO AUTOMATICALLY TERMINATE OR SUSPEND ITS OBLIGATIONS TO PURCHASE TENDERED VARIABLE RATE SERIES 2005 BONDS. IN THE EVENT THAT SUCH LIQUIDITY FACILITY PROVIDER DOES NOT PURCHASE TENDERED VARIABLE RATE SERIES 2005 BONDS SECURED BY IT FOR ANY REASON, THE CITY HAS NO OBLIGATION TO MAKE SUCH PAYMENT. THE RELATED BOND INSURANCE POLICIES DO NOT COVER SUCH TENDERS. SEE “THE INITIAL LIQUIDITY FACILITIES” HEREIN.

Notices of Certain Events under the Liquidity Facility

The Trustee is required to give notice by mail to the Holders of the Variable Rate Series 2005 Bonds of a series secured by a Liquidity Facility (i) on or before the 30th day preceding the replacement, termination or expiration of such Liquidity Facility (except in the case of a termination resulting from an event referred to in the following paragraph) in accordance with its terms, or (ii) in the case of any Mandatory Standby Tender under such Liquidity Facility, as soon as reasonably possible, but no later than the Business Day following the receipt by the Trustee of notice of the Mandatory Standby Tender. The notice shall be accompanied by directions for the purchase of the Bonds pursuant to the Third Lien Indenture. The notice shall (a) state the date of such termination or expiration and, if applicable, the date of the proposed replacement with an Alternate Liquidity Facility (if any), (b) state that the Variable Rate Series 2005 Bonds of such series will be purchased pursuant to the provisions of the Third Lien Indenture as a result of such replacement, termination or expiration, including any termination as a result of a Mandatory Standby Tender and the date on which such purchase will occur pursuant to the provisions of the Third Lien Indenture, and (c) provide any other information required in the notice to the Holders of such series of Variable Rate Series 2005 Bonds by the provisions of the Third Lien Indenture. The City shall provide the Trustee with written notice of any information required to enable the Trustee to give the foregoing notice.

If there should occur any event resulting in the immediate termination or suspension of the obligation of a Liquidity Facility Provider to purchase the related series of Variable Rate Series 2005 Bonds under the terms of its Liquidity Facility, then the Trustee is required as soon as practicably possible thereafter to notify the Bond Insurer, the Remarketing Agent and the Holders of such series of Variable Rate Series 2005 Bonds then outstanding that: (i) the Liquidity Facility has been terminated or suspended, as the case may be; (ii) the Tender Agent will no longer be able to purchase Variable Rate Series 2005 Bonds of such series with moneys available under the Liquidity Facility; and (iii) the Liquidity Facility Provider is under no obligation to purchase Variable Rate Series 2005 Bonds or otherwise to advance moneys to fund the purchase of Variable Rate Series 2005 Bonds.

17

Redemption Provisions

Optional Redemption.

Provided there is no continuing Event of Default under the Third Lien Indenture, the Variable Rate Series 2005 Bonds of each series shall be subject to redemption prior to stated maturity, in whole or in part, at a redemption price of 100% of the principal amount thereof at any time.

Mandatory Redemption.

Variable Rate Series 2005C Bonds. The Variable Rate Series 2005C Bonds shall be subject to mandatory redemption in part at a redemption price equal to 100% of the principal amount redeemed plus accrued interest to the redemption date, on January 1 in each year, commencing January 1, 2033, in the respective principal amounts as follows:

Year Amount 2033 $59,800,000 2034 97,200,000 2035* 43,000,000

*Final Maturity

Any Variable Rate Series 2005C Bonds previously redeemed other than pursuant to the mandatory sinking fund provisions of the Third Lien Indenture may be applied as a credit against such sinking fund obligations.

The Variable Rate Series 2005D Bonds are not subject to mandatory redemption.

General Redemption Procedures.

If less than all the Variable Rate Series 2005 Bonds of a series shall be called for redemption under any provision of the Third Lien Indenture permitting such partial redemption, the particular Variable Rate Series 2005 Bonds of such series to be redeemed will be selected by the Trustee, in such manner as the Trustee in its discretion may deem fair and appropriate consistent with the requirements of the Third Lien Indenture; provided, however, that (a) the portion of any Variable Rate Series 2005 Bond of a series to be redeemed under any provision of the Third Lien Indenture will be in the principal amount of $5,000 or any integral multiple thereof, (b) in selecting Variable Rate Series 2005 Bonds of a series for redemption, the Trustee will treat each Variable Rate Series 2005 Bond of such series as representing that number of Variable Rate Series 2005 Bonds of such series which is obtained by dividing the principal amount of such Variable Rate Series 2005 Bond by $5,000, (c) to the extent practicable, the Trustee will not select any Variable Rate Series 2005 Bond for partial redemption if the amount of such Variable Rate Series 2005 Bond remaining outstanding would be reduced by such partial redemption to less than the minimum Authorized Denomination, and (d) Bank Bonds of a series will be redeemed prior to any Variable Rate Series 2005 Bonds of such series which are not Bank Bonds. If less than all of a Variable Rate Series 2005 Bond is called for redemption, then upon surrender of such Variable Rate Series 2005 Bond the City will execute and deliver, and the Trustee will authenticate and deliver, without charge to the owner thereof, for the unredeemed balance of the Variable Rate Series 2005 Bond so surrendered, Variable Rate Series 2005 Bonds of like maturity, series and interest rate.

At its option, to be exercised on or before the 45th day next preceding any mandatory scheduled redemption date, the City may deliver to the Trustee for cancellation Variable Rate Series 2005 Bonds of the same series in any aggregate principal amount which have been purchased by the City in the open market. Each Variable Rate Series 2005 Bond so delivered, together with any Bank Bonds redeemed as described above, will be credited by the Trustee at 100% of the principal amount thereof against the

18

mandatory scheduled redemption requirement referred to above on such mandatory scheduled redemption date, and any excess of such amount will be credited against future mandatory scheduled redemption requirements in chronological order.

In the event any of the Variable Rate Series 2005 Bonds are called for redemption, the Trustee will give notice, in the name of the City, of the redemption of such Variable Rate Series 2005 Bonds, which notice will (i) specify the Variable Rate Series 2005 Bonds to be redeemed, the redemption date, the redemption price, and the place or places where amounts due upon such redemption will be payable (which will be the Principal Office of the Trustee) and, if less than all of the Variable Rate Series 2005 Bonds of a series are to be redeemed, the numbers of the Variable Rate Series 2005 Bonds of such series, and the portions of the Variable Rate Series 2005 Bonds of such series, so to be redeemed, (ii) state any condition to such redemption, and (iii) state that on the redemption date, and upon the satisfaction of any such condition, the Variable Rate Series 2005 Bonds of such series to be redeemed will cease to bear interest. To the extent notice of redemption does not state as a condition to the redemption of the Variable Rate Series 2005 Bonds the availability of funds being on deposit with the Trustee on the date of redemption in an amount sufficient to pay the then-due redemption price, inclusive of premium, if any, then prior to such notice being distributed by the Trustee, the Trustee must hold on deposit an amount sufficient to pay the redemption price, inclusive of any premium, due on the date of redemption. CUSIP number identification will accompany all redemption notices. Such notice may set forth any additional information relating to such redemption. Such notice will be given by mail, postage prepaid, at least 30 days but not more than 60 days prior to the date fixed for redemption to each Holder of Variable Rate Series 2005 Bonds to be redeemed at its address shown on the registration books kept by the Trustee; provided, however, that failure to give such notice to any Bondholder or any defect in such notice will not affect the validity of the proceedings for the redemption of any of the other Variable Rate Series 2005 Bonds. The Trustee will send a second notice of redemption by certified mail return-receipt requested to any registered Holder who has not submitted Variable Rate Series 2005 Bonds called for redemption 30 days after the redemption date, provided, however, that the failure to give any second notice by mailing, or any defect in such notice, will not affect the validity of any proceedings for the redemption of any of the Variable Rate Series 2005 Bonds, and the Trustee will not be liable for any failure by the Trustee to send any second notice.

Any Variable Rate Series 2005 Bonds and portions of Variable Rate Series 2005 Bonds which have been duly selected for redemption and which are paid in accordance with the Third Lien Indenture will cease to bear interest on the specified redemption date.

Book-Entry Only System

General. The following information has been furnished by the Depository Trust Company (“DTC”), New York, New York for use in this Official Statement and neither the City nor any Underwriter takes any responsibility for its accuracy or completeness.

The DTC Omnibus Proxy record date, as such term is used under this subcaption, is not, and has no relation to, the “Record Date” as defined in APPENDIX A – “GLOSSARY OF TERMS” and used in this Official Statement.

The Depository Trust Company (“DTC”), New York, New York will act as securities depository for the Variable Rate Series 2005 Bonds. The Variable Rate Series 2005 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee), or such other name as may be requested by an authorized representative of DTC. One fully-registered Variable Rate Series 2005 Bond will be issued for each maturity of the Variable Rate Series 2005 Bonds in the aggregate principal amount of such maturity, and will be deposited with DTC.

19

DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

Purchases of Variable Rate Series 2005 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Variable Rate Series 2005 Bonds on DTC’s records. The ownership interest of each actual purchaser of each Variable Rate Series 2005 Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Variable Rate Series 2005 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Variable Rate Series 2005 Bonds, except in the event that use of the book-entry system for the Variable Rate Series 2005 Bonds is discontinued.

To facilitate subsequent transfers, all Variable Rate Series 2005 Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Variable Rate Series 2005 Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Variable Rate Series 2005 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Variable Rate Series 2005 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Variable Rate Series 2005 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Variable Rate Series 2005 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Variable Rate Series 2005 Bond documents. For example, Beneficial Owners of the

20

Variable Rate Series 2005 Bonds may wish to ascertain that the nominee holding the Variable Rate Series 2005 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners; in the alternative, Beneficial Owners may wish to provide their names and addresses to the Bond Registrar and request that copies of the notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Variable Rate Series 2005 Bonds of a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in the Variable Rate Series 2005 Bonds to be redeemed.

Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Variable Rate Series 2005 Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Variable Rate Series 2005 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and interest payments on the Variable Rate Series 2005 Bonds will be paid to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from the City or the Bond Registrar, on the payment date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC (nor its nominee), the City or the Bond Registrar, as applicable, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City and the Bond Registrar; disbursement of such payments to Direct Participants will be the responsibility of DTC; and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as securities depository with respect to the Variable Rate Series 2005 Bonds at any time by giving reasonable notice to the City or the Bond Registrar. Under such circumstances, in the event that a successor securities depository is not obtained, certificates for the Variable Rate Series 2005 Bonds are required to be printed and delivered.

The City may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, certificates for the Variable Rate Series 2005 Bonds will be printed and delivered to DTC.

For every transfer and exchange of the Variable Rate Series 2005 Bonds, the Trustee and DTC and the Participants may charge the beneficial owner a sum sufficient to cover any tax, fee or other charge that may be imposed in relation thereto.

The City and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any Participant with respect to any ownership interest in the Variable Rate Series 2005 Bonds, (ii) the delivery to any Participant or any other person, other than an owner, of any notice with respect to the Variable Rate Series 2005 Bonds, including any notice of redemption, or (iii) the payment to any Participant or any other person, other than an owner, of any amount with respect to principal of or interest on the Variable Rate Series 2005 Bonds.

21

Effect on Variable Rate Series 2005 Bonds of Discontinuance of Book-Entry System. The following two paragraphs apply to the Variable Rate Series 2005 Bonds only when they are not in the book-entry system:

The Variable Rate Series 2005 Bonds bearing interest at a Weekly Interest Rate will be issuable as fully registered bonds in denominations that are $100,000 and integral multiples of $5,000 in excess of $100,000. Exchanges and transfers will be made without charge to the Registered Owners, except that in each case the Trustee may require the payment by the Registered Owner requesting exchange or transfer of any tax or governmental charge required to be paid with respect thereto.

The principal and Tender Price of and interest on the Variable Rate Series 2005 Bonds shall be payable in lawful money of the United States of America. Such amounts shall be paid by the Trustee on the applicable Payment Dates (i) in the case of the Variable Rate Series 2005 Bonds other than Variable Rate Series 2005 Bonds bearing interest at a Long-Term Interest Rate, by wire transfer of immediately available funds to the respective holders thereof on the applicable Record Date to an account specified by the Holder thereof in a writing delivered to the Trustee, and (ii) in the case of Variable Rate Series 2005 Bonds bearing interest at the Long-Term Interest Rate, by check mailed by the Trustee to the respective Holders thereof on the applicable Record Date at their addresses as they appear as of the close of business on the applicable Record Date in the books kept by the Trustee, as bond registrar, except that in the case of such a Holder of $1,000,000 or more in aggregate principal amount of such Variable Rate Series 2005 Bonds, upon the written request of such Holder to the Trustee, specifying the account or accounts to which such payment shall be made, such payments shall be made by wire transfer of immediately available funds on the applicable Payment Date following such Record Date. Any request referred to in clause (ii) of the preceding sentence shall remain in effect until revoked or revised by such Holder by an instrument in writing delivered to the Trustee. The Record Date means (a) with respect to Variable Rate Series 2005 Bonds other than Variable Rate Series 2005 Bonds bearing interest at an Auction Rate, (i) with respect to any Interest Payment Date in respect to any Daily Interest Rate Period, the last Business Day of each calendar month or, in the case of the last Interest Payment Date in respect to a Daily Interest Rate Period, the Business Day immediately preceding such Interest Payment Date, (ii) with respect to any Interest Payment Date in respect to any Weekly Interest Rate Period or any Short-Term Interest Rate Period, the Business Day immediately preceding such Interest Payment Date, and (iii) with respect to any Interest Payment Date in respect to any Long-Term Interest Rate Period, the fifteenth day immediately preceding that Interest Payment Date or, in the event that an Interest Payment Date shall occur less than 15 days after the first day of a Long-Term Interest Rate Period, that first day, and (b) with respect to any Variable Rate Series 2005 Bonds bearing interest at an Auction Rate, the second Business Day next preceding each ARS Interest Payment Date. Notwithstanding the foregoing, so long as records of ownership of the Variable Rate Series 2005 Bonds are maintained through the book-entry only system described below, all payments to the beneficial owners of the Variable Rate Series 2005 Bonds will be made in accordance with the procedures described above under “– Book-Entry Only System – General.”

SECURITY FOR THE VARIABLE RATE SERIES 2005 BONDS

General

The Variable Rate Series 2005 Bonds are limited obligations of the City and do not constitute an indebtedness or a loan of credit of the City within the meaning of any constitutional or statutory limitation, and neither the faith and credit nor the taxing power of the State of Illinois, the City or any other political subdivision of the State of Illinois is pledged to the payment of the principal or purchase price of or interest on the Variable Rate Series 2005 Bonds. The Variable Rate Series 2005 Bonds are not payable in any manner from revenues raised by taxation. No property of the City (including property located at O’Hare) is pledged as security for the Variable Rate Series 2005 Bonds.

22

As described below, the claim of the holders of the Third Lien Obligations, including Holders of the Variable Rate Series 2005 Bonds, to the net Revenues of O’Hare will be junior and subordinate to the claim of the holders of the First Lien Bonds and the holders of the Second Lien Obligations, whether such obligations are currently outstanding or are issued in the future. See “– Flow of Funds” below. The Variable Rate Series 2005 Bonds are secured on a parity basis with the City’s other Third Lien Obligations, other than with respect to the debt service reserve funds therefor. Subject to certain conditions set forth in the Third Lien Indenture, the City may issue additional Third Lien Bonds or other Third Lien Obligations that will be secured on a parity basis with the Series 2005 Bonds and the City’s other Third Lien Obligations. See “O’HARE FINANCIAL INFORMATION – Indebtedness – Issuance of Additional Airport Obligations” and “CAPITAL DEVELOPMENT PROGRAMS.”

Covenants Regarding Issuance of Additional Prior Lien Obligations

Reservation of Right to Restrict Issuance of Additional First Lien Bonds. The City has reserved the right in the Third Lien Indenture to covenant in a Supplemental Indenture for the benefit of holders of Third Lien Obligations not to issue any additional First Lien Bonds other than for the purpose of refunding outstanding First Lien Bonds (including the applicable reserves and costs of issuance).

Restriction on Issuance of Additional Second Lien Obligations. The City has covenanted in the Third Lien Indenture for the benefit of holders of Third Lien Obligations that it will not issue any additional Second Lien Obligations, other than Second Lien Section 208 Obligations, Second Lien-Related Obligations as described below, and Second Lien Obligations issued for the purpose of refunding outstanding Second Lien Obligations (including applicable reserves and costs of issuance).

Issuance of Second Lien-Related Obligations. The City has reserved the right in the Third Lien Indenture to incur obligations in connection with Second Lien Obligations pursuant to any swap agreement, reimbursement agreement relating to a debt service reserve account surety bond or similar agreement (“Second Lien-Related Obligations”), without limit as to nature or amount, payable from Junior Lien Revenues on a parity with or subordinate to outstanding Second Lien Obligations, and in either event prior and superior to Third Lien Obligations issued under the Third Lien Indenture. See APPENDIX B – “SUMMARY OF CERTAIN PROVISIONS OF THE THIRD LIEN INDENTURE − Additional Second Lien-Related Obligations.”

Pledge of Third Lien Revenues

The Third Lien Indenture authorizes the issuance of Third Lien Obligations, without limit as to amount, for the purpose of financing Airport Projects, refunding obligations issued to finance Airport Projects and related purposes. Third Lien Obligations are secured by, and payable from, Junior Lien Revenues paid to the Trustee for deposit into the Third Lien Revenue Fund established under the Third Lien Indenture. Such Junior Lien Revenues, when paid to the Trustee for deposit into the Third Lien Revenue Fund, constitute Third Lien Revenues. Pursuant to the Third Lien Indenture, such Third Lien Revenues are pledged on a parity basis to the payment of the principal of, premium, if any, and interest on all Third Lien Obligations (including the Series 2005 Bonds).

The Third Lien Indenture requires the City to provide for the deposit into the Junior Lien Obligation Debt Service Fund sufficient funds to satisfy the deposit requirements set forth in the Third Lien Indenture, subject only to the prior pledge of Junior Lien Revenues in accordance with the Second Lien Indenture. To satisfy this requirement, the City covenants in the Third Lien Indenture that upon the issuance of each series of Third Lien Obligations it will certify the dates on which amounts on deposit in the Junior Lien Obligation Debt Service Fund are to be withdrawn therefrom and paid to the Trustee for deposit into the Third Lien Revenue Fund, and the amounts of such withdrawals (to the extent determinable).

23

Upon receipt by the Trustee, Third Lien Revenues are required to be deposited into the Third Lien Revenue Fund and segregated into such sub-funds, accounts and sub-accounts as may have been established for the benefit of outstanding series of Third Lien Obligations. The Nineteenth and Twenty-First Supplemental Indentures each establish with the Trustee a separate and segregated sub-fund for the related series of Variable Rate Series 2005 Bonds within the Third Lien Revenue Fund (each a “Series 2005 Dedicated Sub-Fund”). Each Series 2005 Dedicated Sub-Fund is held solely for the benefit of the Registered Owners of the related series of Variable Rate Series 2005 Bonds. Moneys on deposit in each of the Series 2005 Dedicated Sub-Funds described above are not to be used or available for payment of any other Airport Obligations. For a general description of the application of Revenues, see “− Flow of Funds − Payment of Debt Service on the Variable Rate Series 2005 Bonds” below and APPENDIX B – “SUMMARY OF CERTAIN PROVISIONS OF THE THIRD LIEN INDENTURE − Source of Payment; Pledge of Third Lien Revenues and Other Moneys.”

The Variable Rate Series 2005 Bonds are not Common Reserve Bonds (as defined herein) and, accordingly, the Registered Owners of the Variable Rate Series 2005 Bonds do not have a claim against the Common Debt Service Reserve Account (as defined herein). See “– Debt Service Reserve Accounts” below.

The Third Lien Indenture permits the City, at its option, to transfer to the Trustee Other Available Moneys, as described below, to pay the principal of and interest on the Third Lien Bonds. See “– Description of Revenues – Other Available Moneys” below.

Description of Revenues

General. While First Lien Bonds or Second Lien Obligations are outstanding, “Revenues” consist of all amounts received or receivable, directly or indirectly, by the City for the use and operation of, or with respect to, O’Hare, excluding, however: (a) with certain exceptions, amounts received from the Land Support Area; (b) investment income or profit from the investment of the Airport Development Fund, the Construction Fund and the Emergency Reserve Fund; (c) Government Grants-in-Aid, except to the extent used or to be used to pay or reimburse the costs of Capital Projects previously funded through the issuance of Airport Obligations; (d) the proceeds of any passenger facility charge (“PFC”) or similar tax levied by or on behalf of the City; (e) insurance proceeds, except to the extent such moneys are deemed revenues in accordance with generally accepted accounting principles, and condemnation award proceeds; (f) amounts derived by the City from Special Facility Financing Arrangements, but only to the extent such moneys are required to pay the principal of, premium, if any, and interest on Special Facility Revenue Bonds and other payments required by Special Facility Financing Arrangements; and (g) the proceeds of any borrowing by the City.

If there are no First Lien Bonds or Second Lien Obligations outstanding, “Revenues” will have substantially the same meaning as described in the preceding paragraph, except there shall be excluded therefrom any “Released Revenues.” “Released Revenues” means any Revenues in respect of which the Trustee has received the following: (i) a request from the City to exclude such Revenues from the pledge and lien of the Third Lien Indenture; (ii) a Certificate of an Independent Airport Consultant, based upon reasonable assumptions, to the effect that Revenues, after the Revenues covered by such request are excluded for each of the five full fiscal years following the fiscal year in which such certificate is delivered, will be sufficient to enable the City to satisfy the debt service coverage covenants described below under “− Debt Service Coverage Covenants” in each of those five fiscal years; (iii) an opinion of counsel to the effect that (a) the conditions to the release of such Revenues have been met, and (b) the exclusion of such Revenues from the pledge and lien of the Third Lien Indenture will not, in and of itself, cause the interest on any outstanding Third Lien Obligations to be included in gross income for purposes of federal income taxation; and (iv) written confirmation from each of the Rating Agencies to the effect that the exclusion of such Revenues from the pledge and lien of the Third Lien Indenture will not cause a withdrawal or reduction in any unenhanced rating then assigned to any Third Lien Obligations. For a

24

complete definition of Revenues, see APPENDIX A − “GLOSSARY OF TERMS.” For a general description of the application of Revenues under the General Airport Revenue Bond Ordinance, and the application of Third Lien Revenues under the Third Lien Indenture, see “– Flow of Funds” below and APPENDIX B − “SUMMARY OF CERTAIN PROVISIONS OF THE THIRD LIEN INDENTURE − Source of Payment; Pledge of Third Lien Revenues and Other Moneys.”

Other Available Moneys. “Other Available Moneys” means, for any Fiscal Year, the amount of money determined by the Chief Financial Officer to be transferred to the Revenue Fund from sources other than Revenues. Other Available Moneys may include PFCs and other similar charges and Government Grants-in-Aid.

Flow of Funds

Revenues and expenses of O’Hare are accounted for as a separate enterprise fund of the City, subject to the provisions of the General Airport Revenue Bond Ordinance and the Airport Use Agreements. Under the General Airport Revenue Bond Ordinance, Revenues, including amounts collected by the City in order to satisfy deposit requirements established in any resolution, ordinance or indenture securing Junior Lien Obligations (including the deposit requirements established in the Third Lien Indenture), are required to be deposited to the credit of the Revenue Fund in the name of the First Lien Trustee with a depository or depositories, each fully qualified under the provisions of the General Airport Revenue Bond Ordinance to receive the same as deposits of money held by the First Lien Trustee. The First Lien Trustee shall be accountable only for moneys actually so deposited.

Monthly and Semi-Annual Deposits While First Lien Bonds are Outstanding. On the tenth day of each month, the First Lien Trustee is required to make the following deposits from amounts on deposit in the Revenue Fund in the manner and order of priority set forth below:

First: to the City for deposit into the Operation and Maintenance Fund an amount equal to one-twelfth of the amount provided in the Operation and Maintenance Expense Projection for the current Fiscal Year;

Second: into the Debt Service Fund, without priority one over the other, (a) into the Interest Account an amount equal to one-sixth of the amount of interest which will be due on all outstanding First Lien Bonds on the next Payment Date less any amounts payable from the Capitalized Interest Account, and (b) into the Principal Account an amount equal to one-twelfth of the amount of the principal installments which will become due on all outstanding First Lien Bonds on the next January 1; and

Third: to the City for deposit into the Special Capital Projects Fund the amount specified by the City as the amount to be deposited at such time in such Fund.

On the last business day of the month immediately preceding each January 1 and July 1, the First Lien Trustee is required to make the following deposits from amounts on deposit in the Revenue Fund in the manner and order of priority set forth:

First: into the Debt Service Fund the amount, if any, necessary to increase the amount on deposit therein to an amount sufficient to pay the interest and principal installments on all outstanding First Lien Bonds becoming due on such January 1 or July 1;

Second: into the Debt Service Reserve Fund the amount, if any, necessary to increase the amount on deposit therein to an amount equal to the maximum aggregate amount of Annual First Lien Debt Service due on the First Lien Bonds in the then-current or any future Bond Year;

25

Third: to the City for deposit into the Operation and Maintenance Reserve Fund an amount equal to one-half of the Operation and Maintenance Reserve Fund Deposit Requirement, if any, for the Fiscal Year which includes such January 1 and July 1;

Fourth: to the City for deposit into the Maintenance Reserve Fund an amount equal to the lesser of (i) $1,500,000, or (ii) the amount, if any, required to increase the amount on deposit therein to $3,000,000;

Fifth: to the City for deposit into the Emergency Reserve Fund an amount equal to one-half of the annual Emergency Reserve Fund Deposit Requirement, if any;

Sixth: to the City for deposit into the Airport Development Fund an amount equal to one-half of the annual Airport Development Fund Deposit Requirement (calculated pursuant to the Airport Use Agreements as 50 percent of the net revenues of the Land Support Area), if any; and

Seventh: into the Junior Lien Obligation Debt Service Fund an amount equal to the amount required by any resolution or ordinance authorizing Junior Lien Obligations, including, but not limited to, the Variable Rate Series 2005 Bonds, to be deposited therein for the payment of Junior Lien Obligations, including the Variable Rate Series 2005 Bonds.

Flow of Funds When First Lien Bonds or Second Lien Obligations are No Longer Outstanding. The City covenants and agrees in the Third Lien Indenture that, if at any time there are no First Lien Bonds or Second Lien Obligations outstanding, it will establish a system of funds, accounts and deposit requirements that provides for the deposit of Revenues into a Revenue Fund and the application of amounts held in it in the following manner and order of priority: first, to the payment of Operation and Maintenance Expenses; second, to the payment of amounts required to be paid to the Second Lien Trustee (to the extent Second Lien Obligations are outstanding); third, to the payment of amounts required to be paid to the Trustee in accordance with the certificate described under “− Payment of Debt Service on the Variable Rate Series 2005 Bonds” below; fourth, to make such deposits into those funds and accounts as may be determined by the City to be necessary or appropriate; and fifth, for any lawful purpose of the City.

The City has previously covenanted in the Second Lien Indenture that, if at any time there are Second Lien Obligations outstanding and at such time there are no First Lien Bonds outstanding, it reserves the right to establish a system of funds, accounts and deposit requirements with respect to Revenues that is substantially the same as that contained in the General Airport Revenue Bond Ordinance (or it will establish a system of funds, accounts and deposit requirements that provides for the deposit of Revenues to pay Operation and Maintenance Expenses and Aggregate Second Lien Debt Service, in that order of priority, prior to any other deposit of such Revenues).

Payment of Debt Service on the Variable Rate Series 2005 Bonds. The Third Lien Indenture creates the Third Lien Revenue Fund to be held and administered by the Trustee. The City is required to file with the First Lien Trustee, upon the issuance of each series of Third Lien Obligations (including each series of the Variable Rate Series 2005 Bonds), a certificate stating the dates on which amounts on deposit in the Junior Lien Obligation Debt Service Fund are to be withdrawn therefrom by the First Lien Trustee and paid to the Trustee, and the amounts of such withdrawals, and containing a direction of the City to the First Lien Trustee to withdraw from the Junior Lien Obligation Debt Service Fund and pay to the Trustee the amounts, and on the dates, specified in such certificate, subject only to the prior pledge of Junior Lien Revenues in accordance with the Second Lien Indenture and any instrument creating Second-Lien Related Obligations. Upon receipt of such payments the Trustee shall deposit the same in the Third Lien Revenue Fund. The moneys in the Third Lien Revenue Fund shall be disbursed and applied by the Trustee as required by the provisions of any Supplemental Indenture creating a series of Third Lien Obligations (including each Supplemental Indenture pursuant to which each related series of the Variable

26

Rate Series 2005 Bonds is issued), or by any instrument creating Third Lien Obligations. The Trustee shall segregate within the Third Lien Revenue Fund and credit to such sub-funds, accounts and sub-accounts therein as may have been created for the benefit of such Third Lien Obligations such amounts as may be required to be so credited under the provisions of such Supplemental Indenture or instrument creating Third Lien Obligations to pay the principal of and interest on such Third Lien Obligations. See APPENDIX B – “SUMMARY OF CERTAIN PROVISIONS OF THE THIRD LIEN INDENTURE – Payment of Debt Service on the Third Lien Obligations.”

Debt Service Reserve Accounts

Pursuant to the Second Supplemental Indenture, the City established within the 2003A Dedicated Sub-Fund created thereunder (the “2003A Dedicated Sub-Fund”), and is required to maintain, a common Debt Service Reserve Account (the “Common Debt Service Reserve Account”) for the benefit of the then-outstanding Third Lien Bonds (other than the Series 2002A Bonds), and any additional bonds issued by the City in the future pursuant to the Master Indenture and designated by the City as entitled to the benefit of such Common Debt Service Reserve Account (collectively, the “Common Reserve Bonds”), in an amount equal to the Reserve Requirement for the Common Debt Service Reserve Account. In addition, the City has from time to time issued series of Third Lien Bonds that are not Common Reserve Bonds but are each secured by a separate debt service reserve account which is available for payment of debt service only on the series of Third Lien Bonds for which it was established (including the Non-Common Reserve Bonds).

The Variable Rate Series 2005 Bonds have not been designated by the City as Common Reserve Bonds and therefore are not secured by or payable from the Common Debt Service Reserve Account. In addition, no separate debt service reserve account has been established for either series of the Variable Rate Series 2005 Bonds.

The Fixed Rate Series 2005 Bonds, however, have been designated as Common Reserve Bonds and as such are secured by and payable from the Common Debt Service Reserve Account, as described in the separate Official Statement which the City has prepared in connection with the offering of the Fixed Rate Series 2005 Bonds.

Debt Service Coverage Covenants

The City covenants in the Third Lien Indenture to fix and establish, and to revise from time to time when necessary, the rentals, rates and other charges for the use and operation of O’Hare and for services rendered by the City in the operation of it in order that Revenues in each Fiscal Year, together with Other Available Moneys and any cash balance held in the Revenue Fund on the first day of that Fiscal Year not then required to be deposited in any Fund or Account, will be at least sufficient:

(i) to provide for the payment of Operation and Maintenance Expenses for the Fiscal Year; and

(ii) to provide for the greater of (A) the sum of the amounts needed to make the deposits required to be made pursuant to all resolutions, ordinances, indentures and trust agreements pursuant to which all outstanding First Lien Bonds, Second Lien Obligations, Third Lien Obligations or other Airport Obligations are issued and secured, and (B) 110 percent of the Aggregate First, Second and Third Lien Debt Service for the Bond Year commencing during that Fiscal Year, reduced by any proceeds of Airport Obligations held by the Trustee for disbursement during that Bond Year to pay principal of and interest on First Lien Bonds, Second Lien Obligations or Third Lien Obligations.

The City further covenants in the Third Lien Indenture to fix and establish, and revise from time to time whenever necessary, the rentals, rates and other charges for the use and operation of O’Hare and

27

for services rendered by the City in the operation of it in order that Revenues in each Fiscal Year, together with Other Available Moneys consisting solely of: (a) any PFCs deposited with the Trustee for that Fiscal Year; and (b) any other moneys received by the City in the immediately prior Fiscal Year and deposited with the Trustee no later than the last day of the immediately prior Fiscal Year, will be at least sufficient:


(ii) to provide for the payment of Aggregate First, Second and Third Lien Debt Service for the Bond Year commencing during that Fiscal Year, reduced by any proceeds of Airport Obligations held by the Trustee for disbursement during the Bond Year to pay the principal of and interest on First Lien Bonds, Second Lien Obligations or Third Lien Obligations.

As described above under the subcaptions “– Pledge of Third Lien Revenues” and “– Flow of Funds,” semi-annual deposits are required to be made into the Junior Lien Obligation Debt Service Fund to provide funds to pay debt service on Junior Lien Obligations, including the Variable Rate Series 2005 Bonds. See APPENDIX B − “SUMMARY OF CERTAIN PROVISIONS OF THE THIRD LIEN INDENTURE − Coverage Covenants.”

Within 90 days after the end of each Fiscal Year, the City is required by the Third Lien Indenture to furnish to the Trustee calculations of the required debt service coverage, as described above. If either calculation for any Fiscal Year indicates that the City has not satisfied its obligations described above, then as soon as practicable, but in any event no later than 45 days after receipt by the Trustee of such calculation, the City must employ an Independent Airport Consultant to review and analyze the financial status and the administration and operation of O’Hare and to submit to the City, within 45 days after employment of the Independent Airport Consultant, a written report on the same, including the action which the Independent Airport Consultant recommends should be taken by the City with respect to the revision of O’Hare rentals, fees and charges, alteration of its methods of operation or the taking of other action that is projected to result in producing the amount so required in the then-current Fiscal Year or, if less, the maximum amount deemed feasible by the Independent Airport Consultant. Within 60 days of its receipt of the recommendations, the City must revise O’Hare rentals, fees and charges or alter its methods of operation in a manner projected by the City to result in compliance with the required debt service coverage, as described above. If at any time and as long as the City is in full compliance with the provisions of the Third Lien Indenture summarized in this paragraph, there shall be no event of default under the Third Lien Indenture as a consequence of the City’s failure to satisfy the coverage covenants described above.

Debt Service Coverage Covenants Related to CP Notes

In connection with the issuance of the CP Notes, the City has obtained from several banks (the “CP Banks”) an irrevocable transferable letter of credit (the “CP Letter of Credit”) to secure the CP Notes. Pursuant to the Reimbursement Agreement among the City and the CP Banks (the “CP Reimbursement Agreement”) the City has agreed to comply with the covenants described above under “– Debt Service Coverage Covenants.” The City also agreed in the CP Reimbursement Agreement that, in addition to principal and interest (to the extent not capitalized) on Third Lien Obligations (other than commercial paper notes) payable during the period being measured, any outstanding advances under the CP Reimbursement Agreement would be treated as “Aggregate Third Lien Debt Service” and “Third Lien Obligations” in determining compliance with such covenants. The CP Reimbursement Agreement is not made for the benefit of the owners of Series 2005 Bonds, does not relate to the security for the Series 2005 Bonds, and is subject to change at any time without notice to or consent of the owners of the Series 2005 Bonds.

28

Covenants Against Lien on Revenues

The City covenants in the Third Lien Indenture that it will not issue any indebtedness, other than Third Lien Obligations, secured by the pledge of Third Lien Revenues. The City also covenants not to create or cause to be created any lien or charge on Revenues, or on any other amounts pledged for the benefit of owners of the Third Lien Obligations, including the Variable Rate Series 2005 Bonds, other than the pledge of Revenues contained in the General Airport Revenue Bond Ordinance, the Second Lien Indenture and the Third Lien Indenture. See “– Covenants Regarding Issuance of Additional Prior Lien Obligations” above.

Notwithstanding the covenants described in the prior paragraph, the City has the right to issue debt payable from or secured by a pledge of the Revenues to be derived after the discharge and satisfaction of all Third Lien Obligations and to issue debt payable from, or secured by a pledge of amounts to be withdrawn from the Junior Lien Obligation Debt Service Fund so long as such pledge is expressly junior and subordinate to the pledge of Third Lien Revenues to the payment of Third Lien Obligations. Issuance of Additional Third Lien Bonds

Additional Third Lien Bonds, except in the case of Refunding Bonds issued in accordance with the requirements described in APPENDIX B – “SUMMARY OF CERTAIN PROVISIONS OF THE THIRD LIEN INDENTURE – Refunding Bonds” and Completion Bonds issued in accordance with the requirements described in APPENDIX B – “SUMMARY OF CERTAIN PROVISIONS OF THE THIRD LIEN INDENTURE – Completion Bonds,” may be issued only upon the satisfaction of certain conditions. These conditions include delivery to the Trustee of:

(i) a Certificate of an Independent Accountant or a Certificate of the City, in either case stating that Revenues and Other Available Moneys in the most recent completed Fiscal Year for which audited financial statements have been prepared satisfied the first covenant described under “– Debt Service Coverage Covenants” above, assuming for such purpose that Aggregate First, Second and Third Lien Debt Service for the Bond Year commencing during such Fiscal Year includes the maximum Annual First, Second and Third Lien Debt Service on all Outstanding First Lien Bonds, Second Lien Obligations, Third Lien Obligations and the Series of Third Lien Obligations proposed to be issued (disregarding any Airport Obligations that have been paid or discharged or will be paid or discharged immediately after the issuance of the Third Lien Obligations proposed to be issued); or

(ii) a Certificate of an Independent Airport Consultant or a Certificate of the City, in either case stating that, based upon reasonable assumptions, Revenues and Other Available Moneys are projected to be not less than that required to satisfy the first covenant described under “– Debt Service Coverage Covenants” above (disregarding any Airport Obligations that have been paid or discharged or will be paid or discharged immediately after the issuance of the Third Lien Obligations proposed to be issued) for each of the next three Fiscal Years following the issuance of the Third Lien Obligations or, if later, for each Fiscal Year from the issuance of the Third Lien Obligations through the two Fiscal Years immediately following completion of the project or projects financed by the Third Lien Obligations.

For the purpose of computing Revenues under either clause (i) or (ii) above, there must be taken into account (x) any reduction in the rate of any PFCs, and (y) any increase in the rate of any PFCs authorized by legislation if the City has taken all action required to impose those increased charges at O’Hare pursuant to such legislation. For the purpose of computing Revenues and Other Available

29

Moneys under clause (ii) above, Other Available Moneys shall be projected only to the extent they have been (x) paid over to the Trustee and deposited in the Revenue Fund, or (y) irrevocably pledged to the payment of debt service on Airport Obligations. The City shall provide written notice to each Rating Agency of any pledge of Other Available Moneys taken into account for purposes of any projection made in accordance with clause (ii) above prior to the issuance of the additional Third Lien Obligations.

The City may issue Refunding Bonds and Completion Bonds either by satisfying the debt service coverage requirement described above, or by satisfying the applicable requirements described in APPENDIX B – “SUMMARY OF CERTAIN PROVISIONS OF THE THIRD LIEN INDENTURE – Refunding Bonds,” and “– Completion Bonds.”

CP Note Provision Related to Issuance of Third Lien Bonds

The CP Reimbursement Agreement permits the City to issue, incur, assume or create any Airport Obligations as long as the City remains in compliance with the provisions applicable to the issuance of Third Lien Obligations contained in the Third Lien Indenture. For purposes of the CP Reimbursement Agreement, the term “Third Lien Obligations” as used above in subparagraphs (i) and (ii) under “– Issuance of Additional Third Lien Bonds” and in the first covenant described above under “– Debt Service Coverage Covenants” shall include the maximum stated amount of the CP Letter of Credit, and the term “Aggregate Third Lien Debt Service” as used above in subparagraphs (i) and (ii) under “– Issuance of Additional Third Lien Bonds” and in the first covenant described under “– Debt Service Coverage Covenants” shall be modified to assume that the maximum stated amount of the CP Letter of Credit shall be deemed to amortize over 30 years and shall bear interest at the Revenue Bond Index published weekly in The Bond Buyer or, if such index is unavailable, any index chosen by the City and approved by the CP Banks, which provides an average yield on tax exempt revenue bonds with 30 year maturities. The CP Reimbursement Agreement is not made for the benefit of the owners of Series 2005 Bonds, does not relate to the security for the Series 2005 Bonds, and is subject to change at any time without notice to or consent of the owners of the Series 2005 Bonds.

Other Provisions of the Third Lien Indenture

For a description of additional provisions of the Third Lien Indenture concerning the sale or transfer of O’Hare, see APPENDIX B – “SUMMARY OF CERTAIN PROVISIONS OF THE THIRD LIEN INDENTURE – Restrictions on Sale or Transfer of Airport.”

Airport Use Agreements

Airport Use Agreements. Moneys deposited by the City in accordance with the General Airport Revenue Bond Ordinance, the Second Lien Indenture and the Third Lien Indenture include rentals, fees and charges imposed upon the Airline Parties under the Amended and Restated Airport Use Agreement and Terminal Facilities Leases (collectively, the “Airport Use Agreements”) between the City and the Airline Parties. The Airport Use Agreements provide that the aggregate of all rentals, fees and charges to be paid by the Airline Parties shall be sufficient to pay for the net cost of operating, maintaining and developing O’Hare (excluding the Land Support Area), including the satisfaction of all of the City’s obligations to make deposits and payments under the General Airport Revenue Bond Ordinance, the Second Lien Indenture, the Third Lien Indenture and any other ordinance or resolution authorizing Airport Obligations in accordance with the Airport Use Agreements.

The City has Airport Use Agreements with the airlines identified as signatories to the Airport Use Agreement in “OPERATIONS AT O’HARE — Airlines Providing Service at O’Hare.” Those airlines, together with any additional airline that executes an agreement with the City substantially the same as the Airport Use Agreements, are referred to as the “Airline Parties.” According to DOA, the current Airline Parties represented, in the aggregate, approximately 82 percent of the total landed weight at O’Hare for 2004. See “OPERATIONS AT O’HARE − Airlines Providing Service at O’Hare,” and “CERTAIN

30

INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY, AND O’HARE.”

The City has all necessary funding approvals of the Airline Parties for the issuance of the Series 2005 Bonds.

Termination of Use Agreements. The stated expiration date of the Airport Use Agreements is May 11, 2018. A significant portion of the debt service on the Variable Rate Series 2005 Bonds, the Fixed Rate Series 2005 Bonds and the Existing Third Lien Bonds becomes due after such date. It is not possible to predict whether any airlines will be contractually obligated to make payments, including, among other things, debt service on the Fixed Rate Series 2005 Bonds, the Variable Rate Series 2005 Bonds, the Existing Third Lien Bonds or any other Third Lien Bonds, after the stated expiration of the Airport Use Agreements in 2018.

Although the City has covenanted in the General Airport Revenue Bond Ordinance for the benefit of the holders of First Lien Bonds, and in the Second Lien Indenture, for the benefit of the holders of Second Lien Obligations, not to amend the Airport Use Agreements in any manner which would materially and adversely affect the rights or security of such holders, the Third Lien Indenture does not contain such a covenant. Under the Third Lien Indenture, the City has covenanted to establish rentals, fees and charges for the use and operation of O’Hare in order that Third Lien Revenues, together with certain other moneys deposited with the Trustee, are sufficient to pay operation and maintenance expenses at O’Hare and to satisfy the debt service coverage covenants established under the Third Lien Indenture. See “– Debt Service Coverage Covenants” above.

Nonpayment of Rentals, Fees and Charges. The Airport Use Agreements provide that if an Airline Party defaults on the payment of its rentals, fees or charges, and if the City has undertaken appropriate collection efforts and has exhausted certain other specific funds available under the Airport Use Agreements to pay the unpaid rentals, fees or charges, the City then is entitled to include the unpaid rentals, fees or charges in the landing fees payable by the other non-defaulting Airline Parties. See APPENDIX C – “SUMMARY OF CERTAIN PROVISIONS OF THE AIRPORT USE AGREEMENTS.”

Bond Insurance

Payment of the principal of and interest on each series of the Variable Rate Series 2005 Bonds when due will be insured by a separate Bond Insurance Policy to be issued by the Bond Insurer upon the delivery of the Variable Rate Series 2005 Bonds. See “BOND INSURANCE POLICIES” and APPENDIX G for a specimen of the Bond Insurance Policy.

Remedies

There is no provision for the acceleration of the maturity of the Variable Rate Series 2005 Bonds if any default occurs in the payment of the principal of or interest on the Variable Rate Series 2005 Bonds or in the performance of any other obligation of the City under the Third Lien Indenture, or if interest on the Variable Rate Series 2005 Bonds becomes includible in the gross income of the Owners for federal income tax purposes.

INITIAL LIQUIDITY FACILITIES

General

DEPFA BANK plc, acting through its New York branch, will provide funds for the purchase of tendered Variable Rate Series 2005C Bonds supported by its Liquidity Facility, and Dexia Credit Local, acting through its New York branch, will provide funds for the purchase of tendered Variable Rate Series

31

2005D Bonds supported by its Liquidity Facility. The Liquidity Facilities are substantially similar. Accordingly, the majority of the discussion below is generic and applies equally to each series of Variable Rate Series 2005 Bonds. Where the specific terms of the Liquidity Facilities differ, those differences are explicitly identified in the following discussion. Investors are urged to obtain and review each Liquidity Facility for a more detailed description of the provisions thereof. The following descriptions are summaries of certain provisions of the Liquidity Facilities. Such summaries do not purport to be a complete description or restatement of the material provisions of the Liquidity Facilities.

Each Liquidity Facility contains various provisions, covenants and conditions, certain of which are summarized below. Various words or terms used in the following summary are defined in this Official Statement, the respective Liquidity Facility or the Third Lien Indenture, and reference thereto is made for full understanding of their import.

Upon compliance with the terms and conditions of each respective Liquidity Facility, and subject to the terms and conditions set forth therein, each respective Liquidity Facility Provider is obligated to provide funds for the purchase of Eligible Bonds that are tendered for purchase, whether at the option of the owner of such Variable Rate Series 2005 Bonds or upon mandatory tender for purchase, and which such Variable Rate Series 2005 Bonds have not been remarketed. “Eligible Bonds” are Variable Rate Series 2005 Bonds that bear interest at the Daily Interest Rate or Weekly Interest Rate and which are not Bank Bonds or Variable Rate Series 2005 Bonds owned by or held on behalf of, for the benefit of or for the account of the City or any Affiliate of the City. Under each of the Liquidity Facilities, each respective Liquidity Facility Provider is initially obligated to make available an amount equal to the then outstanding aggregate principal amount of the Variable Rate Series 2005 Bonds plus 34 days’ interest thereon at the rate of 12% per annum (together, the “Available Commitment”). To the extent that the Liquidity Facility Providers advance funds under either of the Liquidity Facilities to purchase Variable Rate Series 2005 Bonds, the respective Available Commitment will be reduced by the principal amount of and accrued interest on the Variable Rate Series 2005 Bonds so purchased, subject to reinstatement upon remarketing of the purchased Variable Rate Series 2005 Bonds in accordance with the provisions of the Liquidity Facilities.

Unless terminated earlier, or extended, the Variable Rate Series 2005C Liquidity Facility of DEPFA BANK plc, acting through its New York Branch, will expire on December 22, 2012 and the Variable Rate Series 2005D Liquidity Facility of Dexia Credit Local, acting through its New York Branch, will expire on December 22, 2012.

Under the terms of the Liquidity Facilities, the City is obligated to reimburse each Liquidity Facility Provider for any amounts paid by such Liquidity Facility Provider pursuant to such Liquidity Facility Provider’s respective Liquidity Facility and to pay to the Liquidity Facility Providers any fees and other obligations due and owing to the Liquidity Facility Providers under each respective Liquidity Facility.

UPON THE OCCURRENCE AND CONTINUANCE OF CERTAIN EVENTS UNDER EITHER OF THE LIQUIDITY FACILITIES THE OBLIGATION OF EACH LIQUIDITY FACILITY PROVIDER TO PURCHASE VARIABLE RATE SERIES 2005 BONDS OF THE SERIES FOR WHICH IT IS PROVIDING THE APPLICABLE LIQUIDITY FACILITY WILL BE IMMEDIATELY TERMINATED OR SUSPENDED, IN EITHER CASE WITHOUT PRIOR NOTICE TO HOLDERS OF THE APPLICABLE SERIES OF VARIABLE RATE SERIES 2005 BONDS. See “– Remedies.”

Events of Default

Each of the following events shall constitute an “Event of Default” under the Liquidity Facilities:

32

(a) Any principal of, or interest on, any Variable Rate Series 2005 Bond of the related series (including, without limitation, any Bank Bond (as defined in the Liquidity Facilities)) is not paid by the City when due and such principal or interest is not paid by the Bond Insurer (as defined in the Liquidity Facilities) for such series when, as, and in the amounts required to be paid pursuant to the terms of the Bond Insurance Policy (as defined in the Liquidity Facilities) for such series; or

(b) The Bond Insurer shall (i) claim, in writing, that the Bond Insurance Policy, with respect to the payment of principal of or interest on the related series of Variable Rate Series 2005 Bonds (including, without limitation, Bank Bonds), is not valid and binding on such Bond Insurer in accordance with its terms, (ii) repudiate the obligations of such Bond Insurer under such Bond Insurance Policy with respect to payment of principal of and interest on the Variable Rate Series 2005 Bonds (including, without limitation, Bank Bonds) of such series, or (iii) initiate any legal proceedings contesting the validity or enforceability of the Bond Insurance Policy with respect to payment of principal of or interest on the Variable Rate Series 2005 Bonds (including, without limitation, Bank Bonds) of such series;

(c) (i) A proceeding is instituted in a court having jurisdiction in the premises seeking an order for relief, rehabilitation, reorganization, conservation, liquidation or dissolution in respect of the Bond Insurer or for any substantial part of its property under applicable bankruptcy, insolvency or other similar law and such proceeding is not terminated for a period of 60 consecutive days or such court enters an order granting the relief sought in such proceeding or the Bond Insurer shall institute or take any corporate action for the purposes of instituting any such proceeding; or (ii) the Bond Insurer shall become insolvent or unable to pay its debts as they mature, shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or sequestrator (or other similar official) of the Bond Insurer or for any substantial part of its property, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts or claims as they become due or shall take any corporate action in furtherance of any of the foregoing; provided, however, that the Bond Insurer’s failure to make payments on any financial guaranty insurance policies or surety bonds because of a legitimate dispute between the Bond Insurer and the beneficiary of such policies or surety bonds shall not in and of itself constitute a failure of the Bond Insurer to generally pay its debts or claims as they become due; or

(d) Any representation or warranty made by or on behalf of the City under or in connection with the Liquidity Facilities shall be incorrect or untrue in any material respect when made or deemed to have been made; or

(e) Nonpayment of any amounts owing under the Fee Letter (as defined in the Liquidity Facilities) within 15 Business Days after the City and the Bond Insurer shall receive written notice from the respective Liquidity Facility Provider that the same were not paid when due; or

(f) Nonpayment of any other fees, or any other amount when due under the Liquidity Facilities, if such failure to pay when due shall continue for 15 Business Days after written notice thereof from the respective Liquidity Facility Provider to the City.

(g) The breach by the City of certain covenants contained in the Liquidity Facilities; or

(h) The breach by the City of any of the other terms or provisions contained in the Liquidity Facilities or the Related Documents (as defined in the Liquidity Facilities) and such default shall remain unremedied for a period of 60 days after the respective Liquidity Facility Provider shall have given written notice thereof to the City; or

(i) (i) The City shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization

33

or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its Debts (as defined in the Liquidity Facilities), or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the City shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the City any case, proceeding or other action of a nature referred to in clause (i) above which (x) results in an order for such relief or in the appointment of a receiver or similar official or (y) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the City, any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets, which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the City shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii) or (iii) above; or (v) the City shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its Debts (as defined in the Liquidity Facilities); or

(j) Any material provision of the Liquidity Facilities or any Related Document (other than the Bond Insurance Policy) shall at any time for any reason cease to be valid and binding on the City or any other party thereto or shall be declared to be null and void, or the validity or enforceability thereof shall be contested by the City or such other party thereto or by any Governmental Authority (as defined in the Liquidity Facilities) having jurisdiction, or the City or such other party shall deny that it has any or further liability or obligation under any such document and the occurrence of any such event would have a material adverse effect on the security for the Variable Rate Series 2005 Bonds or the City’s ability to pay its obligations under the Liquidity Facilities or the Bank Bonds; or

(k) The occurrence of any “Event of Default” as defined in the First Lien Ordinance, the Second Lien Indenture, the Indenture, the Supplemental Indenture (as each term is defined in the Liquidity Facilities) or any other Related Document; or

(l) Any Revenues-Secured Debt (as defined in the Liquidity Facilities) shall not be paid when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), or an event shall occur which permits the holders of any Revenues-Secured Debt to accelerate the maturity of such Revenues-Secured Debt; or

(m) One or more final, unappealable judgments against the City for the payment of money payable out of Pledged Revenues (as defined in the Liquidity Facilities) and not covered by insurance, or attachments against the property of the City which is used by or in conjunction with the Airport or which constitutes Pledged Revenues, the operation or result of which, individually or in the aggregate, equal or exceed $1,000,000 shall remain unpaid, unstayed, undischarged, unbonded or undismissed for a period of 30 days; or

(n) The Bond Insurer shall fail to make any payment required under any municipal bond insurance policy (other than the Bond Insurance Policy) or surety bond issued by it insuring obligations rated by Moody’s, Fitch and S&P when due and such failure shall continue for a period of 10 days (it being understood by the Liquidity Facility Providers that default, for purposes of this paragraph, shall not mean a situation whereby the Bond Insurer contests in good faith its liability under any such policy or policies); or

(o) (i) The claims-paying or financial strength rating assigned to the Bond Insurer is reduced below “Baa3” (or its equivalent), “BBB–” (or its equivalent) and “BBB–” (or its equivalent) by Moody’s, Fitch and S&P, or is suspended or withdrawn by each of Moody’s, Fitch and S&P for credit related reasons only, or (ii) the claims-paying rating assigned to the Bond Insurer is reduced below “Aa3” (or its

34

equivalent), “AA–” (or its equivalent) and “AA–” (or its equivalent) by Moody’s, Fitch and S&P, respectively; or

(p) The Bond Insurance Policy ceases to be in full force and effect or is cancelled, terminated, replaced, augmented, amended or modified in any material respect without the prior written consent of the Liquidity Facility Provider, or a court of competent jurisdiction, the Department of Insurance of the State of New York or any other court or government authority with appropriate jurisdiction shall declare, find or rule or shall enter an order, judgment or decree that the Bond Insurance Policy is not valid and binding on the Bond Insurer.

Remedies

The following are remedies available to the Liquidity Facility Providers under the Liquidity Facilities upon the occurrence of certain events of default, as described in “– Events of Default” above:

(a) In the case of an Event of Default under clause (b), or Potential Event of Default (as defined in the Liquidity Facilities) under clause (c)(i) or (n) above, the Liquidity Facility Providers’ obligation to purchase Variable Rate Series 2005 Bonds under the Liquidity Facilities shall immediately be suspended without notice or demand to any person and thereafter the Liquidity Facility Providers shall be under no obligation to purchase Variable Rate Series 2005 Bonds until their obligation to purchase Variable Rate Series 2005 Bonds is reinstated as described below. Promptly upon an Event of Default under clause (b), or Potential Event of Default under clause (c)(i) or (n) above, each Liquidity Facility Provider shall notify the City, the Trustee and the Remarketing Agent of such suspension in writing. With respect to an Event of Default under clause (b) above, if (i) a court with jurisdiction to rule on the validity of the Bond Insurance Policy shall thereafter enter a final, nonappealable judgment that the Bond Insurance Policy is not valid and binding on the Bond Insurer or (b) a period of three years elapses since the commencement of the suspension under the Liquidity Facilities, then the obligation of the Liquidity Facility Providers under the Liquidity Facilities will immediately terminate and the Liquidity Facility Providers shall be under no further obligation to purchase Variable Rate Series 2005 Bonds (as defined in the Liquidity Facilities, an “8.1(b) Final Suspension Event”). With respect to a Potential Event of Default under clauses (c)(i) or (n) above, if such Potential Event of Default becomes an Event of Default, then the obligation of the Liquidity Facility Providers under the Liquidity Facilities will immediately terminate and the Liquidity Facility Providers shall be under no further obligation to purchase Variable Rate Series 2005 Bonds (as defined in the Liquidity Facility, and together with an 8.1(b) Final Suspension Event, a “Final Suspension Event”). If with respect to an Event of Default under clause (b) above, a court with jurisdiction to rule on the validity of the Bond Insurance Policy shall find or rule that the Bond Insurance Policy is valid and binding on the Bond Insurer or if the proceeding triggering a Potential Event of Default under clause (c)(i) above is terminated on or prior to the end of the 60-day period, or the event triggering a Potential Event of Default under clause (n) above is cured on or prior to the 10 day cure period, then upon such ruling, termination or cure, as applicable, each Liquidity Facility Provider’s obligation under the respective Liquidity Facility shall be automatically reinstated and the terms of the respective Liquidity Facility will continue in full force and effect (unless the respective Liquidity Facility shall otherwise have terminated by its terms) as if there had been no such suspension.

(b) In the case of an Event of Default specified in clause (a), (c), (n), (o)(i) or (p) above or a Final Suspension Event, the Liquidity Facility Providers’ obligation to purchase Variable Rate Series 2005 Bonds under the Liquidity Facilities shall immediately terminate without notice or demand to any person, and thereafter the Liquidity Facility Providers shall be under no obligation to purchase Variable Rate Series 2005 Bonds. Promptly upon such Event of Default, each Liquidity Facility Provider shall give written notice of the same to the City, the Trustee and the Remarketing Agent; provided that neither Liquidity Facility Provider shall incur any liability or responsibility whatsoever by reason of its failure to give such notice and such failure shall in no way affect the termination of the respective Liquidity Facility Provider’s obligation to purchase Variable Rate Series 2005 Bonds.

35

(c) In the case of an Event of Default specified in clause (e) or (o)(ii) above, either Liquidity Facility Provider may terminate its obligations to purchase Variable Rate Series 2005 Bonds by giving written notice to the City, the Trustee, the Remarketing Agent and the Bond Insurer (defined in the Liquidity Facilities as a “Notice of Termination”), specifying the date on which its obligation to purchase Variable Rate Series 2005 Bonds shall terminate (defined in the Liquidity Facilities as the “Termination Date”), which shall be not less than 25 days from the date of receipt of such notice, and on and after the Termination Date the respective Liquidity Facility Provider shall be under no further obligation to purchase Variable Rate Series 2005 Bonds under its Liquidity Facility other than Variable Rate Series 2005 Bonds which are the subject of the mandatory tender pursuant to certain provisions of the Supplemental Indenture, which the respective Liquidity Facility Provider shall be required to purchase on or prior to the Termination Date.

(d) In addition to the rights and remedies set forth in clauses (a), (b) and (c) of this subsection Remedies, in the case of any Event of Default specified above, the Liquidity Facility Providers shall have all the rights and remedies available to them under the Liquidity Facilities, the Related Documents or otherwise pursuant to law or equity, provided, however, that the Liquidity Facility Providers shall not have the right to terminate their obligation to purchase Variable Rate Series 2005 Bonds, to declare any amount due under the Liquidity Facilities due and payable, or to accelerate the maturity date of any Variable Rate Series 2005 Bonds except as provided in the Liquidity Facilities and in the Third Lien Indenture. Without limiting the generality of the foregoing, the Liquidity Facility Providers agree, so long as no Automatic Suspension Event or Automatic Termination Event has occurred (as both terms are defined in the Liquidity Facilities), to purchase Variable Rate Series 2005 Bonds on the terms and conditions of the Liquidity Facilities notwithstanding the institution or pendency of any bankruptcy, insolvency or similar proceeding with respect to the City. The Liquidity Facility Providers will not assert as a defense to their obligation to purchase Variable Rate Series 2005 Bonds under the Liquidity Facilities (i) the institution or pendency of a bankruptcy, insolvency or similar proceeding with respect to the City or (ii) a determination by a court of competent jurisdiction in a bankruptcy, insolvency or similar proceeding with respect to the City that the Liquidity Facilities are not enforceable against the City under applicable bankruptcy, insolvency or similar laws.

Information on the Liquidity Facility Providers

Information regarding the Series 2005C Liquidity Facility Provider, which was provided by the Series 2005C Liquidity Facility Provider and has not been verified by the City or the Underwriters, is set forth in APPENDIX H – “THE SERIES 2005C LIQUIDITY FACILITY PROVIDER.” Information regarding the Series 2005D Liquidity Facility Provider, which was provided by the Series 2005D Liquidity Facility Provider and has not been verified by the City or the Underwriter, is set forth in APPENDIX I – “THE SERIES 2005D LIQUIDITY FACILITY PROVIDER.”

ALTERNATE LIQUIDITY FACILITIES

General. Prior to the expiration or termination of the Liquidity Facility relating to a series of the Variable Rate Series 2005 Bonds, provided there is compliance with the terms of the related Supplemental Indenture and such Liquidity Facility, payment to the Liquidity Facility Provider of all amounts owing under the Liquidity Facility, and upon receipt of the written consent of the related Bond Insurer, the City may provide for the delivery to the Tender Agent of an Alternate Liquidity Facility (which has a term of at least 364 days, or, if the Variable Rate Series 2005 Bonds mature prior to the end of such 364-day period, has a term expiring no earlier than the maturity of the Variable Rate Series 2005 Bonds) with respect to such series of the Variable Rate Series 2005 Bonds. Any Alternate Liquidity Facility delivered to the Tender Agent by the City shall be delivered and become effective not later than 10 days prior to the date on which the former Liquidity Facility terminates or expires, and shall contain administrative provisions reasonably acceptable to the Tender Agent, the Remarketing Agent and the

36

related Bond Insurer. On or prior to the date of the delivery of an Alternate Liquidity Facility to the Tender Agent, the City shall furnish to the Tender Agent (A) if such Alternate Liquidity Facility is issued by an issuer other than a domestic commercial bank, a legal opinion to the effect that no registration of such Alternate Liquidity Facility is required under the Securities Act, and no qualification of the related Supplemental Indenture is required under the Trust Indenture Act, or that all applicable registration or qualification requirements have been fulfilled, and (B) a legal opinion to the effect that such Alternate Liquidity Facility is a valid and enforceable obligation of the issuer thereof. In lieu of the legal opinion required by clause (A) above, there may be delivered a legal opinion to the effect that either (A) at all times during the term of such Alternate Liquidity Facility, the related series of Variable Rate Series 2005 Bonds will be offered, sold and held by holders in transactions not constituting a public offering thereof or such Alternate Liquidity Facility under the Securities Act, and accordingly no registration under the Securities Act, nor qualification of the related Supplemental Indenture under the Trust Indenture Act, will be required in connection with the issuance and delivery of such Alternate Liquidity Facility or the remarketing of such series of Variable Rate Series 2005 Bonds with the benefits thereof, or (B) the offering and sale of such series of Variable Rate Series 2005 Bonds, to the extent evidencing such Alternate Liquidity Facility, has been registered under the Securities Act and any indenture required to be qualified with respect thereto under the Trust Indenture Act has been so qualified.

Delivery upon Rating Downgrade. In the event that a Liquidity Facility Provider is downgraded below the top two short-term ratings by S&P or the highest short-term rating by Moody’s (to the extent such rating agency is then rating such Liquidity Facility Provider), the City may, and at the direction of the related Bond Insurer shall, provide for delivery of an Alternate Liquidity Facility acceptable to such Bond Insurer.

Acceptance by Tender Agent. If at any time there is delivered to the Tender Agent (i) an Alternate Liquidity Facility covering all of the Variable Rate Series 2005 Bonds of a series, (ii) the information, opinions and data required under “General” above, and (iii) all information required to give the notice of mandatory tender for purchase of such series of the Variable Rate Series 2005 Bonds, then the Tender Agent shall accept such Alternate Liquidity Facility and, after the date of the mandatory tender for purchase established pursuant to the related Supplemental Indenture (as described below under “Mandatory Tender for Purchase upon Termination, Replacement or Expiration of Liquidity Facility; Mandatory Standby Tender”), promptly surrender the Liquidity Facility then in effect to the issuer thereof for cancellation in accordance with its terms or deliver any document necessary to reduce the coverage of such Liquidity Facility due to the delivery of such Alternate Liquidity Facility.

Notice of Termination. The Trustee shall give notice to the Tender Agent, the Remarketing Agent, the related Bond Insurer and the holders of the related series of Variable Rate Series 2005 Bonds of the termination or expiration of any Liquidity Facility securing such series of Variable Rate Series 2005 Bonds as described below

The Trustee shall give notice by mail to the holders of the Variable Rate Series 2005 Bonds secured by a Liquidity Facility (i) on or before the 30th day preceding the replacement, termination or expiration of such Liquidity Facility (except in the case of a termination resulting from an event referred to in the following paragraph) in accordance with its terms, or (ii) in the case of any Mandatory Standby Tender under such Liquidity Facility, as soon as reasonably possible, but no later than the Business Day following the receipt by the Trustee of notice of the Mandatory Standby Tender. The notice shall be accompanied by directions for the purchase of the Variable Rate Series 2005 Bonds so secured (as described below). The notice shall (A) state the date of such termination or expiration and, if applicable, the date of the proposed replacement with an Alternate Liquidity Facility (if any), (B) state that such Variable Rate Series 2005 Bonds will be purchased (as described below) as a result of such replacement, termination or expiration, including any termination as a result of a Mandatory Standby Tender and the date on which such purchase will occur, and (C) provide any other information required by the related Supplemental Indenture.

37

If there should occur any event resulting in the immediate termination or suspension of the obligation of a Liquidity Facility Provider to purchase Variable Rate Series 2005 Bonds under the terms of any Liquidity Facility, then the Trustee shall as soon as practicably possible thereafter notify the related Bond Insurer, the Remarketing Agent and the holders of all the related Variable Rate Series 2005 Bonds then outstanding that: (i) the Liquidity Facility has been terminated or suspended, as the case may be; (ii) the Tender Agent will no longer be able to purchase such Variable Rate Series 2005 Bonds with moneys available under such Liquidity Facility; and (iii) the Liquidity Facility Provider is under no obligation to purchase such Variable Rate Series 2005 Bonds or to otherwise advance moneys to fund the purchase of such Variable Rate Series 2005 Bonds.

Mandatory Tender for Purchase upon Termination, Replacement or Expiration of Liquidity Facility; Mandatory Standby Tender. If at any time the Variable Rate Series 2005 Bonds secured by a Liquidity Facility shall cease to be subject to purchase pursuant to such Liquidity Facility as a result of (i) the termination, replacement or expiration of the term, as extended, of such Liquidity Facility, including, but not limited to, termination at the option of the City in accordance with the terms of such Liquidity Facility, or (ii) the occurrence of a Mandatory Standby Tender, then each Bond of such series of Variable Rate Series 2005 Bonds shall be purchased or deemed purchased at the Tender Price. Any such purchase of Variable Rate Series 2005 Bonds of a series shall occur: (1) on the fifth Business Day preceding any such expiration or termination of such Liquidity Facility without replacement by an Alternate Liquidity Facility or upon any termination thereof as a result of a Mandatory Standby Tender; and (2) on the date of the replacement of a Liquidity Facility, in any case where an Alternate Liquidity Facility has been delivered to the Tender Agent. In the case of any replacement, the existing Liquidity Facility will be drawn to pay the Tender Price, if necessary, rather than the Alternate Liquidity Facility. No such mandatory tender will be effected upon the replacement of a Liquidity Facility in the case where the Liquidity Facility is failing to honor conforming draws.

Payment of the Tender Price of any Variable Rate Series 2005 Bond shall be made in immediately available funds by 3:00 p.m., New York City time, on the Tender Date upon delivery of such Variable Rate Series 2005 Bond to the Tender Agent at its Principal Office for delivery of Variable Rate Series 2005 Bonds, accompanied by an instrument of transfer, in form satisfactory to the Tender Agent, executed in blank by the Bondholder with the signature of such Bondholder guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange, at or prior to 12:00 noon, New York City time, on the Tender Date. If, as a result of any such Mandatory Standby Tender, expiration, termination with notice or replacement of such a Liquidity Facility, any Variable Rate Series 2005 Bond is no longer subject to purchase pursuant to a Liquidity Facility, the Tender Agent (upon receipt from the holder thereof in exchange for payment of the Tender Price thereof) shall present such Variable Rate Series 2005 Bond to the Trustee for notation of such fact thereon.

REMARKETING AGREEMENT

Under the Remarketing Agreement, Citigroup Global Markets Inc. is appointed as Remarketing Agent for the Variable Rate Series 2005 Bonds. The Remarketing Agent agrees to perform all of the interest rate setting functions for the Variable Rate Series 2005 Bonds assigned to it in the Indenture and to use its best efforts to offer for sale and to sell the Variable Rate Series 2005 Bonds tendered at a price of not less than 100 percent of the principal amount thereof plus accrued interest, if any. The Remarketing Agent shall be under no obligation to remarket Variable Rate Series 2005 Bonds upon the occurrence of an event of default under the Third Lien Indenture, or if the Third Lien Indenture, Liquidity Facilities or the Bond Insurance Policies are not in full force and effect or have been amended, modified or supplemented in a way which materially and adversely affects the Variable Rate Series 2005 Bonds or upon the occurrence of certain other specific events set forth in the Remarketing Agreement.

A Remarketing Agent may at any time resign and be discharged of the duties and obligations created by the Remarketing Agreement by giving notice to the City, the Trustee, the Bond Insurer and the

38

Liquidity Facility Providers. Such resignation shall take effect on the 30th day after the receipt by the City of the notice of resignation. A Remarketing Agent may be removed at any time on 15 days prior written notice, by an instrument signed by the City and the Bond Insurer, approved by the Liquidity Facility Providers and delivered to such Remarketing Agent, the Trustee and the Tender Agent. In no event shall such removal take effect prior to the date that a successor Remarketing Agent has been appointed by the City and the Bond Insurer and has accepted such appointment.

BOND INSURANCE POLICIES

General

The following information pertaining to the Bond Insurer has been supplied by the Bond Insurer. The City makes no representation as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the dates indicated. Although such information contains reference to payment upon acceleration, the Variable Rate Series 2005 Bonds are not subject to acceleration upon the occurrence of an event of default under the Third Lien Indenture. Summaries of or references to the Bond Insurance Policies are made subject to all the detailed provisions thereof to which reference is hereby made for further information and do not purport to be complete statements of any or all of such provisions. See APPENDIX G − “SPECIMEN BOND INSURANCE POLICY.”

Neither of the Bond Insurance Policies insures payment of Variable Rate Series 2005 Bonds that have been tendered for purchase and not remarketed.

The Bond Insurer

Bond Insurance Policies. The following information has been furnished by CIFG Assurance North America, Inc. (the “Bond Insurer”) for use in this Official Statement with respect to the Variable Rate Series 2005 Bonds. Reference is made to APPENDIX G for a specimen of the Bond Insurance Policy.

General

CIFG Assurance North America, Inc. (the “Bond Insurer”) is a monoline financial guaranty insurance company incorporated under the laws of the State of New York. The address of the principal executive offices of the Bond Insurer is 825 Third Avenue, Sixth Floor, New York, New York 10022; its toll-free telephone number is (866) CIFG-212 and its general telephone number is (212) 909-3939.

The Bond Insurer is a member of the CIFG Group of financial guaranty companies, which also includes CIFG Europe, a French insurance company licensed to do business in the European Union, and CIFG Guaranty, a dedicated French reinsurance corporation. In addition to its capital and surplus as set forth below, the Bond Insurer is supported by a net worth maintenance agreement from CIFG Guaranty, which provides that CIFG Guaranty will maintain the Bond Insurer’s New York statutory capital and surplus at no less than $80 million, and may cede a substantial portion (not to exceed 90%) of its exposure on each transaction to CIFG Guaranty through a facultative reinsurance agreement.

Each of the Bond Insurer, CIFG Europe and CIFG Guaranty has received an insurer financial strength rating of “AAA” from Fitch, an insurer financial strength rating of “Aaa” from Moody’s, and an insurer financial enhancement rating of “AAA” from S&P, the highest rating assigned by each rating agency. Each such rating should be evaluated independently. The ratings reflect the respective rating agency’s current assessment of each company’s capacity to pay claims on a timely basis and are not recommendations to buy, sell or hold the Variable Rate Series 2005 Bonds. Such ratings may be subject to revision or withdrawal at any time.

39

The Bond Insurer is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York, its state of domicile, and is licensed to do business in 44 jurisdictions. The Bond Insurer is subject to Article 69 of the New York Insurance Law which, among other things, limits the business of such insurers to financial guaranty insurance and related lines, requires that such insurers maintain a minimum surplus to policyholders, establishes contingency, loss and unearned premium reserve requirements for such insurers, and limits the size of individual transactions and the volume of transactions that may be underwritten by such insurers. Other provisions of the New York Insurance Law applicable to non-life insurance companies such as the Bond Insurer regulate, among other things, permitted investments, payment of dividends, transactions with affiliates, mergers, consolidations, acquisitions or sales of assets and incurrence of liabilities for borrowings.

Capitalization

The following tables set forth the Capitalization of the Bond Insurer on the basis of accounting principles generally accepted in the United States (“US GAAP”) and statutory accounting practices prescribed or permitted by the New York State Insurance Department, respectively.

US GAAP December 31, 2004

(in thousands of US dollars) Total Assets $ 246,767 Total Liabilities $ 117,368 Shareholder’s Equity $ 129,399

Statutory Accounting Practices

December 31, 2004 (in thousands of US dollars)

Admitted Assets $ 152,361 Liabilities $ 38,733 Capital and Surplus $ 113,628

The following table sets forth the capitalization of CIFG Guaranty on the basis of US GAAP.

US GAAP December 31, 2004

(in thousands of euros)

(in thousands of US dollars)(1)

Assets Є 621,431 $ 847,632 Liabilities Є 107,816 $ 147,061 Shareholder’s Equity Є 513,615 $ 700,571 (1) The Translation of euros into dollars is presented solely for the convenience of the reader, using the observed exchange rate

at December 31, 2004 of $1.364 to Є1.00.

For further information concerning the Bond Insurer and CIFG Guaranty, see the audited financial statements of both companies; including the respective notes thereto, prepared in accordance with US GAAP as of December 31, 2004 and 2003 and for each of the three years in the period ended December 31, 2004, and the unaudited interim financial statements of the Bond Insurer as of September 30, 2005 and for the nine-month period ended September 30, 2005, which are available on the CIFG Group’s website at www.cifg.com. Copies of the most recent audited annual and unaudited interim financial statements of the Bond Insurer prepared in accordance with accounting principles prescribed or permitted by the New York State Insurance Department, are also available on the website and may be obtained, without charge, upon request to the Bond Insurer at its address above, Attention: Finance Department.

40

CHICAGO O’HARE INTERNATIONAL AIRPORT

General

O’Hare is the primary commercial airport for the City, as well as an important connecting point for numerous domestic and international flights. Located 18 miles northwest of the City’s central business district, O’Hare occupies approximately 7,000 acres of land and is directly linked to the central business district by a rapid transit rail system.

According to statistics compiled by the Airports Council International, in 2004 O’Hare was the busiest airport in the world, measured in terms of total operations, and the second busiest in terms of total passengers. According to DOA, O’Hare had a record 37,444,548 enplaned passengers in 2004 and 34,433,532 enplaned passengers in 2003. See “OPERATIONS AT O’HARE.” The strong origin-destination passenger demand and the geographic location of Chicago near the center of the United States and along the most heavily traveled east/west air routes make it a natural hub location.

Both United Airlines and American Airlines, the world’s two largest air carriers (in terms of revenue passenger miles), use O’Hare as one of their major hubs. United Airlines (including its regional/commuter partners operating as United Express) accounted for 48.5 percent of the enplaned passengers at O’Hare in 2004 and 50.0 percent of the enplaned passengers in 2003. United Airlines currently is operating under the protection of Chapter 11 of the United States Bankruptcy Code. American Airlines (including American Eagle, its regional/commuter partner) accounted for 36.4 percent of the enplaned passengers at O’Hare in 2004 and 34.5 percent of the enplaned passengers in 2003. See “OPERATIONS AT O’HARE – Airlines Providing Service at O’Hare,” and “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY, AND O’HARE – Financial Condition of Airlines Serving O’Hare,” “– United Airlines” and “– American Airlines.”

The Air Trade Area

The primary air trade area that O’Hare serves consists of 10 counties in Illinois (Cook, DeKalb, DuPage, Grundy, Kane, Kankakee, Kendall, Lake, McHenry and Will), four counties (Jasper, Lake, Newton and Porter) in Indiana and one county (Kenosha) in Wisconsin. These 15 counties comprise the “Chicago Region” and include two Metropolitan Statistical Areas that contain four adjoining major metropolitan areas. This area is depicted on the map on the following page.

41

MAP OF CHICAGO REGION

42

Other Commercial Service Airports Serving the Chicago Region

Midway. In addition to O’Hare, Midway is owned by the City and operated through the DOA. Midway, located 15 miles south of O’Hare and nine miles southwest of the central business district of the City, also provides scheduled commercial passenger service. Based upon DOA management records, total enplaned passengers at Midway for 2004 were 8,709,556. O’Hare and Midway are operated as separate and distinct enterprises for financial purposes, and the Third Lien Obligations, including the Variable Rate Series 2005 Bonds, are not secured by any revenues generated, or property located, at Midway. The City recently concluded a terminal development program for Midway that included the construction of a new terminal facility. The current Midway capital development program does not include any runway projects.

General Mitchell International Airport. The nearest commercial service airport outside the Chicago Region is General Mitchell International Airport (“Mitchell”), located approximately 70 miles north of O’Hare. Mitchell serves the commercial air service needs of Milwaukee, southeast Wisconsin, and portions of northern Illinois. Total enplaned passengers at Mitchell for 2004 were approximately 3,300,000.

Gary/Chicago International Airport. Gary/Chicago International Airport, which is owned by the City of Gary, Indiana and operated by the Gary/Chicago International Airport Authority, is also located in the Chicago Region; however, this airport provides limited scheduled commercial passenger service.

Market Segmentation

O’Hare is by far the busiest airport serving the Chicago Region. O’Hare serves nearly all of the Chicago Region’s international air traffic (which is growing in absolute terms and in its share of total enplanements at O’Hare) and is the predominant airport for nonstop/business travel to the area’s top 50 O&D markets. Midway serves a distinct market segment in the Chicago Region as a lower-fare alternative to a more limited number of destinations (Midway had an average one-way, domestic fare of approximately $100 in 2004, compared to $138 at O’Hare). Midway has approximately 290 daily nonstop flights to 55 primarily domestic markets, whereas O’Hare has approximately 1,265 daily nonstop flights to 175 domestic and international markets. Midway’s connecting percentage of passenger traffic was approximately 32 percent in 2004, and represented a weighted average of approximately 29 percent between 2000 and 2004, whereas O’Hare’s connecting percentage of passenger traffic was approximately 55 percent in 2004, and represented a weighted average of approximately 54 percent between 2000 and 2004.

Although Mitchell is in close proximity to O’Hare (their overlapping service areas include three counties in the northern Chicago Region area, which represent approximately 12 percent of the population in the Chicago Region), the higher-frequency nonstop service to top O&D markets from O’Hare attracts a greater portion of traffic in northern Illinois and southern Wisconsin to O’Hare. Mitchell has approximately 250 daily nonstop flights to 50 markets. In addition, fare differentials are not significant enough to divert traffic from these overlapping service areas to Mitchell, as the average one-way fare for domestic travel in 2004 was approximately $138 for O’Hare and approximately $132 for Mitchell.

Existing Airport Facilities

O’Hare currently has six commercial aircraft runways and one general aviation runway, all of which are supported by a network of aircraft taxiways, aprons and hold areas. The commercial runways are arranged in a pattern that creates three sets of parallel runways, allowing independent aircraft operations on various runways. Three of the individual runways are over 10,000 feet in length and 11 of the 12 individual commercial runway ends have electronic and other navigational aids that permit aircraft landings in most weather conditions.

43

The airlines serving O’Hare operate out of four terminal buildings. Three terminal buildings, having a total of 157 aircraft gates, serve domestic flights and certain international departures. The International Terminal, with 21 aircraft gates and five hardstand positions, serves the remaining international departures and all international arrivals requiring customs clearance, as well as some domestic departures and arrivals. The Airport Transit System, an automated train system that travels on a dedicated guideway, serves the three domestic terminals, the International Terminal and the remote long-term parking areas.

A hotel, an elevated parking structure and the heating and refrigeration plant serving O’Hare are located adjacent to the terminal buildings. The hotel, currently leased and operated by Hilton Hotels Corporation, provides 858 guest rooms as well as restaurants and meeting facilities. The six-story parking structure has approximately 9,300 parking spaces and is supplemented by approximately 13,000 public and 18,000 employee ground level parking spaces located elsewhere at O’Hare.

With 14 air cargo buildings occupied by airlines, one building occupied by a freight forwarder, and eight aircraft maintenance hangars leased by airlines, O’Hare is a major center for other aviation-related activity such as aircraft maintenance and domestic and international air cargo shipment. In addition, three flight kitchens, three buildings used for airline ground equipment maintenance, two large United States Postal Service facilities and an airport equipment maintenance complex that stores and services snow removal and other equipment are located at O’Hare.

Airport Management

O’Hare is owned by the City and operated through the DOA, which oversees planning, operations, safety and security, and finance and administration. DOA also independently oversees such activities at Midway. DOA is headed by the Commissioner of Aviation and has approximately 1,400 employees. In June 2003, a new office (the “OMP Office”) was created with direct responsibility for planning, design and construction of the OMP. The OMP Office, which currently has 18 employees, is headed by its Executive Director.

Regional Authority

In 1995, the City and the City of Gary, Indiana, entered into the Compact, which established the Chicago-Gary Authority to oversee and support Midway, O’Hare, Meigs Field and the Gary/Chicago International Airport, to evaluate jointly the bi-state region’s need for additional airport capacity and to coordinate and plan for the continued development, enhancement and operation of such airports and the development of any new airport serving the bi-state region. Subject to the power of the Chicago-Gary Authority to approve certain capital expenditures and other actions, the City continues to manage, own and operate Midway and O’Hare. Meigs Field was closed by the City on March 30, 2003. The City does not need to obtain the approval of the Chicago–Gary Authority in connection with the issuance of the Variable Rate Series 2005 Bonds, but approval is required for implementation of certain components of the O’Hare Modernization Program. The City has obtained all required approvals from the Chicago-Gary Authority for the OMP.

O’Hare Noise Compatibility Commission

In early 1997, the O’Hare Noise Compatibility Commission (the “O’Hare Noise Commission”) was formed through the execution of an intergovernmental agreement by the City, Cook County and certain municipalities and school districts that are located in the area surrounding O’Hare. The purpose of the O’Hare Noise Commission is to (i) determine certain noise compatibility projects to be implemented in a defined area surrounding O’Hare, (ii) oversee a noise monitoring system operated by the City, and (iii) advise the City concerning other O’Hare noise-related issues. As of September 30, 2005, the City

44

had spent $303,500,000 on residential and school noise compatibility projects since the establishment of the O’Hare Noise Commission in 1997.

Budget Procedures

Financial transactions involving O’Hare are subject to the City’s annual appropriation ordinance and follow the City’s budget process. The City is required by law to pass an annual appropriation ordinance prior to the beginning of each fiscal year. DOA submits its proposed budget for the following fiscal year, including the proposed budget for O’Hare, to the City’s Budget Director for inclusion in the proposed City budget. The Budget Director includes a proposed budget for DOA in the City’s budget proposal for approval by the Mayor who submits the City budget to the City Council for approval. O’Hare’s budget, as proposed by DOA, may be modified by the Budget Director, the Mayor or the City Council. The City Council adopted an appropriation ordinance for the City for 2006 on December 14, 2005, as required by law.

OPERATIONS AT O’HARE

Recent O’Hare Operations

For over 40 years, O’Hare has been and continues to be one of the principal components in the national airspace system, providing not only the primary origin and destination service to the third largest metropolitan area in the United States, but also serving as an important connecting hub for the world’s two largest airlines (in terms of revenue passenger miles) – United Airlines and American Airlines. In addition, O’Hare provides substantial and growing international service. Airports Council International reported that in 2004 O’Hare ranked first worldwide in total aircraft operations with 992,427 takeoffs and landings; second worldwide in total passengers, with 75.1 million enplaned and deplaned passengers; and 14th worldwide in total cargo, with 1.7 million enplaned and deplaned tons. The levels of passengers, operations, and cargo tons at O’Hare in 2004 were the highest recorded annual level for each of these categories in O’Hare’s history. O’Hare has ranked first worldwide in total aircraft operations in 40 of the last 43 years and first worldwide in total passengers in 36 of the last 43 years. In 2004, O’Hare served 75.1 million passengers, or approximately 206,000 passengers each day.

During a typical week in October 2005 (October 10 through October 16, 2005), non-stop service was provided from O’Hare to each of its top 50 domestic origin and destination (“O&D”) markets. In the same week, non-stop service was available from O’Hare to 33 of its top 50 international O&D markets, and to 22 of its top 25.

Passenger Activity at O’Hare

1995-2004 Enplanements. Enplaned passenger traffic at O’Hare can be divided into two primary components: O&D and connecting. O&D enplaned passengers consist of two groups. The first group includes those travelers whose residence and/or place of employment are in the Chicago Region and surrounding communities and whose air trips originate at O’Hare. The second group includes travelers who are not residents of or employed within the Chicago Region and surrounding communities, but who visit for business, personal or pleasure-related activity. Connecting passengers include those passengers traveling from a destination outside the Chicago Region to a destination outside the Chicago Region, who board one aircraft at O’Hare after having arrived on another aircraft at O’Hare. The number of connecting enplaned passengers at O’Hare reflects airline operating decisions, which are in part dictated by the size of the local air passenger market, and the geographic location of O’Hare relative to heavily traveled air routes.

45

The following table shows domestic and international enplaned passengers at O’Hare from 1995 through 2004. Total enplaned passengers at O’Hare increased 4.6 percent in 2003 and 8.7 percent in 2004, resulting in O’Hare reaching a record high of approximately 37.4 million total enplaned passengers in 2004. By comparison, total enplaned passengers nationwide increased 2.6 percent in 2003 and 7.2 percent in 2004. Previously, O’Hare experienced two years of decreasing numbers of enplaned passengers in 2001 and 2002, during a period that included the events of September 11 and the nationwide economic slowdown. These results followed a period of moderate growth in the latter half of the 1990s when the total number of enplaned passengers at O’Hare increased from 32.8 million in 1995 to 35.7 million in 2000.

The total number of domestic enplaned passengers at O’Hare also reached a record high in 2004, numbering approximately 32.2 million. This was O’Hare’s second consecutive year of strong growth for domestic enplanements, with a 4.7 percent domestic enplanement increase in 2003 (numbering approximately 29.9 million enplaned passengers) and a 7.6 percent domestic enplanement increase in 2004. This increase in domestic enplaned passengers was primarily the result of (i) increased hubbing activity at O’Hare by American and American Eagle as a byproduct of downsizing its hub at Lambert-St. Louis International Airport in late 2003, and (ii) United’s increased service/lowered fares in response to the initiation of lower-cost service by Independence Air at O’Hare in mid-2004, as well as the initiation of United’s lower-fare service provider Ted to certain Florida markets during this same period. The number of domestic enplaned passengers on American and American Eagle increased by approximately 2.3 million between 2002 and 2004 (representing a compounded annual growth rate of 10.4 percent). During this same period; the number of domestic enplaned passengers on United Express carriers increased by approximately 1.5 million (compounded annual growth rate of 28.0 percent). Previously, O’Hare had experienced decreasing numbers of domestic enplaned passengers, during a period that included the events of September 11 and the nationwide economic slowdown. These results interrupted the prior trend of moderate growth in the number of domestic enplaned passengers in the latter half of the 1990s, when the total number of domestic enplaned passengers at O’Hare increased from approximately 29.5 million in 1995 to approximately 30.7 million in 2000.

The number of international enplaned passengers at O’Hare in 2004 also reached a record level, numbering approximately 5.3 million, representing a second year of growth. International enplaned passengers at O’Hare increased by 4.3 percent in 2003 (numbering approximately 4.5 million international enplaned passengers) and 16.0 percent in 2004. The significant increase in 2004 was primarily the result of increased demand following the abatement of severe acute respiratory syndrome (“SARS”) in Asia and Canada, the conclusion of the initial phase of the Iraqi war, as well as United’s initiation of service to new international markets and expansion of service to certain existing markets. The number of international enplaned passengers on United increased more than 500,000 from 2003 to 2004. Previously, O’Hare had experienced two years of decreasing numbers of international enplaned passengers in 2001 and 2002, a period that included the events of September 11 and the outbreak of SARS in Asia and Canada.

These results followed significant growth in the latter half of the 1990s, with the total number of international enplaned passengers at O’Hare increasing from approximately 3.3 million in 1995 to over 5.0 million in 2000.

46

TOTAL ENPLANED PASSENGERS CHICAGO O’HARE INTERNATIONAL AIRPORT

1995 – 2004

Year

Total Domestic Enplaned

Passengers (1)

% of Total Enplaned

Passengers at O’Hare

Total International

Enplaned Passengers

% of Total Enplaned

Passengers at O’Hare

Total Enplaned

Passengers(2)

Annual

Percentage Change

1995 29,557,080 90.0 3,298,380 10.0 32,855,460 --- 1996 30,538,500 89.6 3,529,385 10.4 34,067,885 3.7% 1997 30,889,194 88.8 3,889,544 11.2 34,778,738 2.1 1998 31,453,453 87.9 4,336,508 12.1 35,789,961 2.9 1999 31,190,715 86.8 4,757,001 13.2 35,947,716 0.4 2000 30,651,752 85.9 5,049,197 14.1 35,700,949 (0.7) 2001 28,693,866 86.1 4,616,363 13.9 33,310,229 (6.7) 2002 28,560,357 86.8 4,358,579 13.2 32,918,936 (1.2) 2003 29,889,369 86.8 4,544,163 13.2 34,433,532 4.6 2004 32,172,058 85.9 5,272,490 14.1 37,444,548 8.7

Compounded Annual Growth Rates, 1995-2004:

0.9% 5.4% 1.5%

______________________ Source: DOA Management Records. (1) Represents both air carrier and commuter enplaned passengers. (2) Total Enplaned Passengers equals Total Domestic Enplaned Passengers plus Total Enplaned International Passengers.

Enplaned Passengers exclude general aviation, military, helicopter, and miscellaneous passengers included in DOA Management Records.

47

The following table shows total enplaned passengers, total originating passengers and total connecting enplaned passengers at O’Hare from 1995 through 2004.

HISTORICAL ORIGINATING AND CONNECTING ENPLANEMENTS CHICAGO O’HARE INTERNATIONAL AIRPORT

1995 – 2004

Total Connecting Originating Connecting Enplaned Annual Enplanement

Year Enplanements(1) Enplanements Passengers(2) Growth Percentage 1995 14,770,455 18,085,015 32,855,460 - 55.0% 1996 15,757,488 18,310,397 34,067,885 3.7% 53.7 1997 16,356,145 18,422,593 34,778,738 2.1 53.0 1998 16,764,341 19,025,620 35,789,961 2.9 53.2 1999 16,849,260 19,098,456 35,947,716 0.4 53.1 2000 17,215,087 18,485,862 35,700,949 (0.7) 51.8 2001 15,731,018 17,579,211 33,310,229 (6.7) 52.8 2002 15,260,093 17,658,843 32,918,936 (1.2) 53.6 2003 15,310,104 19,123,428 34,433,532 4.6 55.5 2004 16,778,179 20,666,369 37,444,548 8.7 55.2


1.4% 1.5% 1.5%

____________________ Sources: U.S. DOT Origin & Destination Survey of Airline Passenger Traffic

U.S. Department of Justice Immigration and Naturalization Service DOA Management Records

(1) Calculation of originating enplanements for each year reflects 2004 methodology. (2) Excludes general aviation, military, helicopter, and miscellaneous passengers included in the DOA’s

Management Records.

48

Aircraft Operations

The following table shows total aircraft operations at O’Hare for the period 1995 through 2004. In general, the growth in air carrier operations is consistent with the trend in enplaned passengers. Total passenger airline aircraft operations increased from 809,834 in 1995 to 942,090 in 2004, representing a compounded average annual growth rate of 1.5 percent during this period. In 2001 and 2002, domestic air carrier operations increased primarily as a result of decisions by United Airlines and American Airlines to increase service provided by their regional/commuter partners. See “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY, AND O’HARE – Factors Affecting O’Hare – Impact of Regional Jets on O’Hare.” As shown in the following table, this shifting of domestic passenger service from the major/national airlines to their regional/commuter partners is especially evident between 2002 and 2004, when regional/commuter operations increased at a compounded annual growth rate of 18.3 percent. Total aircraft operations increased at a compounded annual growth rate of 1.1 percent between 1995 and 2004, increasing from 900,279 to 992,427. Total aircraft operations for January through October 2005 were 815,908 compared to 831,322 for the same period in 2004. While the number of aircraft operations in 2004 was the highest number in O’Hare’s history, in November 2004, the FAA and the domestic airlines serving O’Hare agreed to voluntarily limit aircraft operating at O’Hare, which is the primary reason for the decline in aircraft operations to date in 2005. See “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY, AND O’HARE – Factors Affecting O’Hare – FAA Caps on Operations at O’Hare.”

TOTAL AIRCRAFT OPERATIONS CHICAGO O’HARE INTERNATIONAL AIRPORT

1995– 2004

Domestic

Year Majors/

Nationals Regionals/ Commuters

InternationalAir Carrier

Total Passenger Airlines All-Cargo

General Aviation/Misc.(1) Total

1995 582,578 168,422 58,834 809,834 18,338 72,107 900,279 1996 581,894 170,930 61,813 814,637 19,184 75,772 909,593 1997 586,050 161,330 66,558 813,938 20,630 49,193 883,761 1998 583,973 169,914 72,736 826,623 23,999 45,488 896,110 1999 575,837 177,854 78,187 831,878 23,984 39,596 896,228 2000 561,862 201,772 85,164 848,798 24,626 35,565 908,989 2001 541,782 230,292 81,884 853,958 21,105 36,854 911,917 2002 539,269 262,345 70,103 871,717 20,790 30,310 922,817 2003 489,822 312,910 76,455 879,187 21,257 28,247 928,691 2004 492,469 367,227 82,394 942,090 21,588 28,749 992,427


(1.8%) 9.0% 3.8% 1.7% 1.8% (9.7%) 1.1% Source: DOA Management Records. (1) Includes general aviation, miscellaneous and military aircraft operations. Airlines Providing Service at O’Hare

As of October 2005, O’Hare had scheduled air service by 24 U.S. flag air carriers, scheduled and nonscheduled service by 28 foreign flag carriers, non-scheduled service by five charter airlines and scheduled cargo service by 23 all-cargo carriers. The airlines listed in the following table currently provide service at O’Hare.

49

AIRLINES SERVING O’HARE (1) Scheduled U.S. Carriers – 24

Foreign Flag Carriers – 28

Other/Nonscheduled Carriers – 5

All-Cargo Carriers – 23

*Air Wisconsin (United Express) Aer Lingus American Trans Air(2) Air China Alaska Airlines *Air Canada(3) Casino Express Air New Zealand *America West Airlines(4) Air France Miami Air Airborne Express *American Airlines Air India Ryan International Airlines Asiana Airlines *American Eagle Air Jamaica TransMeridian Airlines Atlas Air(5) Chautauqua Airlines (United Express) Alitalia Cargolux Airlines International Comair (Delta Connection) Asiana China Airlines *Continental Airlines Aviacsa China Eastern Airlines *Delta Air Lines(6) British Airways DHL Airlines ExpressJet Airlines (Continental Express) British Midland Airways (now BMI) Eva Airways GoJet (United Express) Cayman Airways Evergreen International Airlines *Independence Air(7) Cross/Swiss *FedEx Mesa Airlines (United Express) El Al Israel Airlines Florida West International Airways Mesaba Airlines (Northwest Airlink)(8) Iberia Airlines of Spain Kalitta Air MidAtlantic Airways (US Airways Express) Japan Airlines Lufthansa Cargo *Northwest Airlines(9) Jazz Air Martin Air Holland, N.V. Pinnacle (Northwest Airlink) KLM Royal Dutch Airlines Nippon Cargo Airlines Shuttle America (United Express) Korean Air Polar Air Cargo(5) SkyWest Airlines (United Express) Kuwait Airways Qantas Airways Spirit Airlines LOT Polish Airlines Singapore Cargo Trans States Airlines (United Express) Lufthansa German Airlines Southern Air *United Airlines/Ted (United lower-fare service)(10) Mexicana de Aviacion *United Parcel Service *US Airways(4)(11) Pakistan International Airlines Corp. UPS-Supply Chain Solution USA 3000 Airlines Privatair SA Royal Jordanian Airlines Scandinavian Airlines System (SAS) TACA Turkish Airlines Source: DOA Management Records. (1) As of October 2005. (2) American Trans Air filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on October 26, 2004. (3) Air Canada filed for reorganization under Canada’s Companies’ Creditors Arrangement Act on April 1, 2003. It emerged from bankruptcy protection on September 30, 2004. (4) On September 27, 2005, US Airways completed its merger with America West. (5) Atlas Air/Polar Air Cargo filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on January 30, 2004. Atlas Air/Polar Air Cargo emerged from Chapter 11 on July 27,

2004. (6) Delta Air Lines filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on September 14, 2005. (7) Independence Air filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on November 7, 2005. (8) Mesaba Airlines filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on October 13, 2005. (9) Northwest Airlines filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on September 14, 2005. (10) United filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on December 9, 2002. (11) US Airways filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on August 11, 2002. It emerged from Chapter 11 on March 31, 2003. US Airways again filed for

reorganization under Chapter 11 on September 12, 2004. It emerged from Chapter 11 on September 16, 2005. * Denotes airline that is obligated under an Airport Use Agreement as an Airline Party.

50

AIRLINE SHARES OF ENPLANED PASSENGERS CHICAGO O’HARE INTERNATIONAL AIRPORT

(2000-2004)(1)

2000 2001 2002 2003 2004

Airlines Enplaned

Passengers Share Enplaned




Passengers Share 1. United/Ted(2) 15,284,974 42.8% 14,057,822 42.2% 13,935,560 42.3% 13,780,164 40.0% 14,222,780 38.0% 2. American 11,282,511 31.6% 10,001,205 30.0% 9,436,168 28.7% 9,552,465 27.7% 10,641,646 28.4% 3. American Eagle 1,626,148 4.6% 1,666,814 5.0% 1,841,764 5.6% 2,319,637 6.7% 2,993,453 8.0% 4. Air Wisconsin (UAX) 794,489 2.2% 987,094 3.0% 854,881 2.6% 1,561,285 4.5% 2,172,712 5.8% 5. Atlantic Coast (UAX)/

Independence Air(3) 347,958 1.0% 648,725 1.9% 1,406,700 4.3% 1,829,053 5.3% 819,572 2.2%

6. Delta(4) 1,040,698 2.9% 874,228 2.6% 658,086 2.0% 616,039 1.8% 607,226 1.6% 7. SkyWest - - - - - 13,177 0.0% 598,667 1.6% 8. Northwest(5) 700,337 2.0% 603,497 1.8% 527,303 1.6% 547,737 1.6% 505,278 1.3% 9. US Airways(6)(7) 565,734 1.6% 511,322 1.5% 532,549 1.6% 465,034 1.4% 489,918 1.3% 10. Continental 600,994 1.7% 525,146 1.6% 461,407 1.4% 437,571 1.3% 423,693 1.1% 11. Spirit 25,900 0.1% 223,173 0.7% 298,044 0.9% 367,994 1.1% 369,645 1.0% 12. America West(7) 284,715 0.8% 306,385 0.9% 310,056 0.9% 342,750 1.0% 367,469 1.0% 13. Mexicana 337,235 0.9% 309,416 0.9% 259,022 0.8% 270,970 0.8% 295,419 0.8% 14. Air Canada(8) 333,599 0.9% 352,240 1.1% 344,910 1.0% 270,105 0.8% 268,824 0.7% 15. Lufthansa 228,366 0.6% 210,130 0.6% 235,259 0.7% 249,744 0.7% 263,124 0.7% Other(9) 2,247,291 6.3% 2,033,032 6.1% 1,817,227 5.5% 1,809,807 5.3% 2,405,122 6.4% Airport Total(10) 35,700,949 100.0% 33,310,229 100.0% 32,918,936 100.0% 34,433,532 100.0% 37,444,548 100.00%

Source: DOA Management Records. (1) For those airlines that were party to a merger or acquisition, only the acquiring entity is shown. However, the activity for the airline(s) that are now a part of the acquiring airline is included in the

information presented. (2) United filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on December 9, 2002. (3) Began operating as Independence Air in June 2004. Atlantic Coast operating as UAX had a total of 770,768 enplanements in 2004 (2.1 percent share). Independence Air had a total of 48,804

enplanements in 2004 (0.1 percent share). On November 7, 2005, Independence Air filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. (4) Delta filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on September 14, 2005. (5) Northwest filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on September 14, 2005. (6) US Airways filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on August 11, 2002. It emerged from Chapter 11 on March 31, 2003. US Airways again filed for reorganization under

Chapter 11 on September 12, 2004. It emerged from Chapter 11 on September 16, 2005. (7) On September 27, 2005, US Airways completed its merger with America West. (8) Air Canada filed for reorganization under Canada’s Companies’ Creditors Arrangement Act on April 1, 2003. It emerged from reorganization on September 30, 2004. (9) Includes other United Express carriers that had a total of 400,078 enplaned passengers in 2004 (a combined share of 1.1 percent during this period). (10) Columns may not add to totals due to rounding.

51

O’HARE FINANCIAL INFORMATION

Operating Results

The following is a summary of O’Hare’s operating revenues and operation and maintenance expenses for the five-year period 2000 through 2004. O’Hare’s fiscal year corresponds with the calendar year. See APPENDIX D – “AUDITED FINANCIAL STATEMENTS.”

HISTORICAL OPERATING RESULTS CHICAGO O’HARE INTERNATIONAL AIRPORT

2000-2004 (IN THOUSANDS)

Operating Revenues

2000 2001 2002 2003 2004

Landing Fees............................................................ $105,909 $136,375 $131,369 $141,426 $131,406 Rental Revenues Terminal Rentals/Use Charges 152,536 144,653 138,440 150,151 96,959 Other Rentals/Fueling System Fees 31,694 31,283 32,102 33,511 35,227 Sub-Total Rental Revenues...................................... 184,230 175,936 170,542 183,662 132,186 Concessions: Auto Parking ................................................. 91,252 84,688 81,580 83,210 90,421 Auto Rentals .................................................. 19,846 18,077 17,511 17,325 17,340 Restaurants .................................................... 16,963 16,951 20,247 22,088 27,161 News/Gifts..................................................... 7,250 7,071 9,389 10,185 11,001 Other (1).......................................................... 27,340 24,307 17,826 21,560 21,501 Sub-Total Concessions ............................................ 162,651 151,094 146,553 154,368 167,424 Reimbursements ...................................................... 2,561 2,354 2,582 2,501 11,553 Total Operating Revenues........................................ $455,351 $465,759 $451,046 $481,957 $442,569 Operation and Maintenance Expenses Salaries and Wages (2) ............................................. $150,264 $154,507 $166,964 $167,891 $153,926 Repairs and Maintenance......................................... 70,411 71,117 66,310 65,870 66,066 Energy...................................................................... 22,067 24,661 23,445 23,011 22,270 Materials & Supplies ............................................... 8,401 5,363 5,198 5,702 8,228 Engineering & Other Professional Services............. 36,324 41,540 33,494 35,759 35,533 Other Operating Expenses ....................................... 30,040 28,205 29,959 33,317 31,807 Total Operation and Maintenance Expenses Before Depreciation and Amortization (3) ............... $317,507 $325,393 $325,370 $331,550 $317,830 Net Operating Income Before Depreciation and Amortization(4) $137,844 $140,366 $125,676 $150,407 $124,739

Sources: Chicago O’Hare International Airport Audited Financial Statements − Statistical Information and City of Chicago

Comptroller’s Office. (1) Includes hotel, display advertising, telecommunications, duty free shop, retail gift shop and other miscellaneous revenues. (2) Salaries and Wages include charges for pension, health care and other employee benefits. (3) Fiscal year 2000 includes certain PFC expenses. Thereafter, certain PFC expenses are classified as non-operating expenses. (4) Operating results may be reconciled to the Audited Financial Statements by deducting depreciation and amortization.

52

Audited Financial Statements

The financial statements of O’Hare included as APPENDIX D to this Official Statement have been audited by Deloitte & Touche LLP, independent certified public accountants, to the extent and for the periods included in their report on those statements.

Discussion of Financial Operations

The “Historical Operating Results” table on the prior page summarizes O’Hare’s audited financial results for the years 2000 through 2004. Operating revenues in the table are comprised of landing fees, terminal area rental/use charges, other rentals/fueling system fees and concessions. Operation and maintenance expenses are comprised of salaries and wages, repairs and maintenance, energy, materials and supplies, engineering and other professional services and other operating costs which include insurance premiums, equipment rentals, vehicles and various miscellaneous costs.

Because of the “residual” nature of the Airport Use Agreements, the City charges the Airline Parties based on a projection of, and recognizes revenues from the Airline Parties only to the extent required to fund, the net airline requirement (equal to operation and maintenance expenses, net debt service requirements and fund deposit requirements less non-airline revenues). Accordingly, landing fees and terminal area rental/use charges decreased by $61.7 million in 2004 compared to 2003, due to decreased operation and maintenance expenses, debt service requirements and fund deposit requirements of approximately $13.7 million, $31.3 million and $3.6 million, respectively, and increased non-airline revenues of approximately $13.1 million.

The increase in non-airline revenues of $13.1 million from 2003 to 2004 was primarily due to increases in parking, restaurant and news and gift concession revenues of $7.2 million, $5.1 million and $0.8 million, respectively. From 2000 through 2004, non-airline revenues averaged 34.8 percent of total operating revenues.

The decrease in total operation and maintenance expenses before depreciation and amortization of $13.7 million from 2003 to 2004 was primarily due to decreases in salaries and wages and other operating expenses offset by increases in materials and supplies. The decrease in salaries and wages of $13.9 million is primarily due to the City’s early retirement incentive program, not filling vacant positions, and reduced overtime costs, medical care premiums and pension contributions. The decrease of $1.5 million in other operating expenses was mainly due to decreased indirect non-personnel costs of approximately $2.9 million offset by approximately $1.1 million of increases in workman’s compensation insurance premiums. The increase in materials and supplies of approximately $2.5 million was mainly due to additional requirements for deicing chemicals during the year.

Cash Balances

As of September 30, 2005, O’Hare’s unaudited unrestricted cash and investments balance was $271.8 million and its unaudited restricted cash and investments balance was $1,540.2 million, compared to September 30, 2004 unaudited balances of $181.7 million and $1,388.8 million, respectively. The $90.1 million increase in unrestricted cash and investments was primarily due to the collection of certain amounts from Airline Parties, concession revenues in excess of projected rates and charges and net Land Support revenues and timing differences in the payment of monthly operation and maintenance expenses. The $151.4 million increase in restricted cash and investments was mainly due to CP Note proceeds of $383.6 million issued during 2005 offset by payments of approximately $275.9 million from the construction funds, the use of approximately $34 million of capitalized interest to pay debt service requirements, an increased balance of approximately $6.4 million in the principal and interest debt service accounts, and an increased balance of approximately $71.2 million in the PFC fund.

53

Insurance

The City’s property and liability insurance premiums allocated to O’Hare are approximately $12.4 million per year. The City maintains aggregate property and liability insurance coverage for both O’Hare and Midway and allocates the cost of the premiums between the two airports. The property coverage was renewed on December 31, 2004 with a limit of $2.8 billion and includes $2.4 billion in terrorism coverage, and the liability coverage was renewed May 15, 2005 with a limit of $750 million and includes $750 million in war and terrorism liability coverage.

Indebtedness

General. The City has financed capital improvements at O’Hare through the issuance of Airport Obligations and other indebtedness and from federal grants, PFC revenues, airline contributions and other Airport funds. Such other indebtedness issued to finance capital improvements at O’Hare includes International Terminal Special Revenue Bonds (“International Terminal Bonds”), Passenger Facility Charge Revenue Bonds (“PFC Bonds”) and Special Facility Revenue Bonds (“Special Facility Bonds”). See APPENDIX D − “AUDITED FINANCIAL STATEMENTS − Note 4.”

After the issuance of the Series 2005 Bonds and the refunding of the Prior Bonds, the City will have outstanding $117,975,000 aggregate principal amount of First Lien Bonds, $805,980,000 aggregate principal amount of Second Lien Bonds and $3,508,760,000 aggregate principal amount of Third Lien Bonds.

There are no International Terminal Bonds outstanding and the City has no current plans to issue any additional International Terminal Bonds.

The City has outstanding $180,655,000 of First Lien PFC Bonds and $672,515,000 of Second Lien PFC Bonds, which are secured solely by PFCs imposed by the City at O’Hare. PFC Bonds are secured separately from Airport Obligations, including the Series 2005 Bonds. See “– PFC Program,” below.

The City has previously issued Special Facility Bonds on behalf of six different airlines, as well as certain non-airline parties, to finance or refinance a portion of the capital improvements at O’Hare. These Special Facility Bonds are secured solely by amounts received from such airlines and non-airline parties pursuant to the terms of related Special Facility Financing Arrangements, and are secured separately from Airport Obligations. See “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY, AND O’HARE – Financial Condition of Airlines Serving O’Hare” and the subheading thereunder “–United Special Facility Bonds.”

Issuance of Additional Airport Obligations. The City intends to issue additional Airport Obligations, including additional Third Lien Bonds, to complete the funding of the Five-Year CIP and OMP-Phase 1 (including the OMP-Phase 1 Noise Program), all as described below under “CAPITAL DEVELOPMENT PROGRAMS.” Such additional Airport Obligations may include, without limitation, Third Lien Bonds payable from PFC Revenues and, if PFC Revenues are insufficient, Revenues (the “Double-Barreled PFC Third Lien Bonds”). Approximately $1,534.9 million of the total cost of OMP-Phase 1 will remain to be funded after issuance of the Series 2005 Bonds, from sources anticipated to include approximately $55.8 million of FAA entitlement grants, approximately $304.5 million of FAA discretionary grants, approximately $49.1 million of pay-as-you-go PFCs, approximately $601.6 million of Double-Barreled PFC Third Lien Bonds, and approximately $599.9 million of general airport revenue bonds. Subject to market and other conditions, the City anticipates issuing all of these additional Airport Obligations by 2009.

54

Obligations Subordinate to Pledge of Third Lien Revenues. As described under “SECURITY FOR THE VARIABLE RATE SERIES 2005 BONDS – Covenants Against Lien on Revenues,” the City has the right to issue debt payable or secured from Revenues to be derived after the discharge and satisfaction of all Third Lien Obligations and to issue debt payable from, or secured by a pledge of amounts to be withdrawn from the Junior Lien Obligation Debt Service Fund so long as such pledge is expressly junior and subordinate to the pledge of Third Lien Revenues to the payment of Third Lien Obligations. Indebtedness of the type described in the preceding sentence can be issued without limit as to nature or amount.

The CP Notes represent indebtedness of the type described in the preceding paragraph. Under the CP Program, the City can issue CP Notes in an aggregate principal amount outstanding at any one time of up to $600,000,000. There are currently $389,706,000 CP Notes outstanding, all of which will be repaid from a portion of the proceeds of the Series 2005 Bonds and other available monies.

Debt Service Schedule. The General Airport Revenue Bond Ordinance secures on a parity basis as to Revenues the outstanding First Lien Bonds. The Second Lien Indenture secures on a parity basis as to Second Lien Revenues the outstanding Second Lien Obligations. The Third Lien Indenture secures on a parity basis as to Third Lien Revenues, the Variable Rate Series 2005 Bonds, the Fixed Rate Series 2005 Bonds, the Existing Third Lien Bonds and any additional Third Lien Obligations issued or incurred by the City from time to time. The claim of the Third Lien Obligations to Revenues is junior and subordinate to the First Lien Bonds and the Second Lien Obligations. See “SECURITY FOR THE VARIABLE RATE SERIES 2005 BONDS − General,” “– Covenants Regarding Issuance of Additional Prior Lien Obligations” and “− Pledge of Third Lien Revenues.”

The debt service on the outstanding First Lien Bonds, Second Lien Bonds, the Existing Third Lien Bonds, and the Series 2005 Bonds, after the issuance of the Variable Rate Series 2005 Bonds and the Fixed Rate Series 2005 Bonds and the refunding of the Prior Bonds, is shown on the following chart:

[Remainder of page intentionally left blank]

55

DEBT SERVICE SCHEDULE AFTER ISSUANCE OF SERIES 2005 BONDS(1)

Fixed Rate Series 2005 Bonds

Variable Rate Series 2005 Bonds(3)

Total

Bond Year Ending

January 1

Total Debt Service on

First Lien Bonds

Total Debt Service on

Second Lien Bonds(3)

Total Debt Service on Previously Issued Third Lien Bonds(4) Principal Interest Principal Interest Debt Service

2006(2) $ 7,597,050 $ 48,318,999 $ 64,104,181 0 0 0 328,767 120,348,997 2007 5,666,250 51,510,725 168,141,737 0 62,756,599 0 12,000,000 300,075,310 2008 5,666,250 121,372,350 178,656,665 0 61,225,950 0 12,000,000 378,921,215 2009 5,666,250 121,522,013 141,763,351 0 61,225,950 0 12,000,000 342,177,564 2010 5,666,250 121,771,800 98,495,601 0 61,225,950 0 12,000,000 299,159,601 2011 5,666,250 121,291,450 98,494,101 0 61,225,950 0 12,000,000 298,677,751 2012 52,006,250 75,379,850 98,492,476 0 61,225,950 0 12,000,000 299,104,526 2013 51,994,250 75,665,025 114,395,726 0 61,225,950 0 12,000,000 315,280,951 2014 917,000 75,938,300 113,918,983 46,655,000 61,225,950 0 12,000,000 310,655,233 2015 917,000 76,406,925 121,230,470 49,120,000 58,776,563 0 12,000,000 318,450,958 2016 19,257,000 72,804,325 119,818,470 32,820,000 56,197,763 0 12,000,000 312,897,558 2017 0 58,614,300 135,081,220 53,790,000 54,474,713 0 12,000,000 313,960,233 2018 0 59,894,125 133,316,220 56,605,000 51,650,738 0 12,000,000 313,466,082 2019 0 0 159,702,808 50,795,000 48,678,975 0 12,000,000 271,176,783 2020 0 0 161,978,823 53,335,000 46,139,225 0 12,000,000 273,453,048 2021 0 0 157,745,908 55,995,000 43,472,475 0 12,000,000 269,213,382 2022 0 0 157,954,489 58,810,000 40,672,725 0 12,000,000 269,437,214 2023 0 0 158,497,671 59,955,000 37,732,225 0 12,000,000 268,184,896 2024 0 0 159,258,184 62,000,000 34,584,588 0 12,000,000 267,842,771 2025 0 0 159,258,978 65,255,000 31,329,588 0 12,000,000 267,843,565 2026 0 0 159,795,741 64,180,000 27,903,700 0 12,000,000 263,879,441 2027 0 0 160,324,963 63,025,000 24,534,250 0 12,000,000 259,884,213 2028 0 0 160,327,825 66,180,000 21,383,000 0 12,000,000 259,890,825 2029 0 0 160,321,688 69,485,000 18,074,000 0 12,000,000 259,880,687 2030 0 0 160,326,438 72,960,000 14,599,750 0 12,000,000 259,886,187 2031 0 0 160,327,550 76,605,000 10,951,750 0 12,000,000 259,884,300 2032 0 0 160,328,000 80,440,000 7,121,500 0 12,000,000 259,889,500 2033 0 0 114,679,938 61,990,000 3,099,500 59,800,000 12,000,000 251,569,437 2034 0 0 114,681,038 0 0 97,200,000 9,608,000 221,489,038 2035 0 0 19,504,450 0 0 143,000,000 5,720,000 168,224,450 Total $ 161,019,800 $1,080,490,187 $4,070,923,689 $1,200,000,000 $1,122,715,274 $300,000,000 $ 339,656,767 $8,274,805,716

Source: DOA Management Records.

(1) Totals may not add due to rounding. (2) Excludes debt service payments and deposits made prior to the issuance of the Series 2005 Bonds. (3) Assumes an interest rate of four percent on $148,500,000 Second Lien Bonds and $300,000,000 Third Lien Bonds that are variable rate demand obligations. (4) Excludes the Series 2005 Bonds.

56

PFC Program

On September 1, 1993, the City implemented a PFC of $3.00 per enplaned passenger, which was increased to $4.50 per enplaned passenger on April 1, 2001. The City has authority to impose and use approximately $3.0 billion in PFCs at O’Hare. In July 1996, the City issued $250,000,000 aggregate principal amount of First Lien PFC Bonds secured by the City’s PFC Revenues at O’Hare, of which $180,655,000 are outstanding. In 2001, the City issued $700,000,000 aggregate principal amount of Second Lien PFC Bonds secured by the City’s PFC Revenues at O’Hare, of which $672,515,000 are outstanding. See “− Indebtedness – Issuance of Additional Airport Obligations” above and “CAPITAL DEVELOPMENT PROGRAMS.”

The City’s authority to impose and use PFCs at O’Hare is subject to certain terms and conditions provided in the federal PFC authorizing legislation, the PFC regulations adopted by the Federal Aviation Administration (the “FAA”) and the specific FAA approvals applicable to the City’s PFC program. A failure by the City to comply with any of these requirements, or a violation by the City of the federal Airport Noise and Capacity Act, could result in a reduction or termination of the City’s authority to impose PFCs and to use such PFCs to finance a portion of the Capital Development Programs. For information about the City’s ability to use PFCs for the payment of debt service on Third Lien Bonds, including the Variable Rate Series 2005 Bonds, see “SECURITY FOR THE VARIABLE RATE SERIES 2005 BONDS – Description of Revenues – Other Available Moneys.” As described under “–Issuance of Additional Airport Obligations” and “CAPITAL DEVELOPMENT PROGRAMS,” the City is planning to issue Double-Barreled PFC Third Lien Bonds to finance a portion of the cost of the O’Hare Modernization Program. A PFC application seeking approximately $510.7 million of impose and use authority for project funding and $501.6 million of impose and use authority for financing costs is being prepared for submission to FAA for this purpose. The City anticipates receiving FAA approval in 2006.

CAPITAL DEVELOPMENT PROGRAMS

General

The City’s current plans for capital development at O’Hare are organized into the O’Hare Modernization Program (the “OMP”) and the Five-Year Capital Improvement Program (the “CIP” and with the OMP, the “Capital Development Programs”).

In addition to the Capital Development Programs, the City, in accordance with criteria established by the O’Hare Noise Compatibility Commission, participates in an ongoing program of providing sound insulation to eligible schools and residences in the vicinity of O’Hare (the “OMP-Phase 1 Noise Program”). See “– The OMP-Phase 1 Noise Program” and “CHICAGO O’HARE INTERNATIONAL AIRPORT – O’Hare Noise Compatibility Commission.”

The City has previously announced the World Gateway Program (the “WGP”) at O’Hare, which was conceived to expand gate capacity through construction of new terminal complexes and enabling projects and provide additional improvements within the Terminal Core Area. In December 2000, the City commenced work on the formulation of WGP-Phase 1 (the “WGP Formulation Project”). In September 2002, in light of changed conditions in the industry and the economy, the City and the airlines agreed to suspend further work on the WGP. The City’s design-build contractor for the proposed terminal complex was directed to complete its 30 percent design submittal and demobilize. All other formulation work was suspended. Work will resume consistent with demand and upon receipt of airline funding approval. The City received funding approval from a Majority-in-Interest of Airline Parties for a portion of the WGP Formulation Project; no further airline negotiations related to the WGP are currently under way.

57

The OMP

The OMP is a comprehensive program providing for the reconfiguration of the airfield at O’Hare as well as construction of a passenger terminal, access/circulation systems and necessary support facilities, and will be implemented over a multi-year period, in phases. The major functional components of the OMP include the addition of one new runway and the relocation of three of the seven existing runways. Two of the existing runways will also be extended. The OMP also includes the planning and construction of an airside concourse and a western terminal having approximately 1.5 million square feet of space and approximately 60 gates, parking facilities, a people mover system, access roads and other enabling projects. In addition, the OMP provides for all necessary noise mitigation and land acquisition.

Benefits from OMP

The OMP is designed to enhance both O’Hare and system-wide airport capacity. The final Environmental Impact Statement (“EIS”) defines the purpose and the need of the OMP development as addressing the projected needs of the Chicago region by reducing delays at O’Hare, thereby enhancing capacity of the National Airspace System (“NAS”), and ensuring that existing and future terminal facilities and supporting infrastructure can efficiently accommodate airport users. Under the OMP, the airfield is to be reconfigured into a modern parallel runway system, allowing more efficient operations. The overriding physical characteristic of the OMP is the reconfiguration of the airfield from sets of parallel runways in three main directional orientations (northeast/southwest, east/west, and northwest/southeast) to six parallel runways in the east/west direction and two runways in the northeast/southwest direction. From an airfield capacity standpoint, the OMP provides for triple independent simultaneous approaches in the east/west directions during instrument flight rules (“IFR”) conditions in poor weather, and quadruple independent simultaneous approaches during visual flight rules (“VFR”) conditions in clear weather. Additionally, O’Hare will be able to accommodate new, larger Airplane Design Group VI aircraft, as classified by the FAA, with wingspans exceeding 214 feet. The major benefits expected through development of the OMP are as follows:

• Delay Reduction: The OMP will ultimately reduce delays by over 70 percent at existing demand levels with greater delay reduction expected during periods of higher demand. The planned runway layout will ultimately provide balanced arrival and departure capabilities to address delay during all weather conditions and peak periods.

• Capacity Increase: The capacity increases achieved through the OMP are expected to meet aviation demand in the Chicago Region beyond 2030.

In addition to airfield modifications, the OMP will enhance other areas of the Airport. The OMP also includes the expansion of terminal facilities to the west and ultimate development of a western access road to O’Hare. New navigational aids will be added and existing navigational aids will be upgraded. New north and south airport traffic control towers will be constructed to ensure full air traffic control coverage of the expanded airfield. Public and employee parking facilities will be expanded to meet demand and a new secure automated people mover system will link a future west terminal to the existing terminal core.

OMP-Phase 1

The OMP will be implemented in phases over several years. OMP-Phase 1, which is the only phase of the OMP being funded with proceeds from the Series 2005 Bonds, is the initial phase of development and includes the completion of physical and operational planning (including environmental

58

permitting and preliminary engineering), property acquisition and relocation services, wetlands mitigation, one new runway, one relocated runway and the extension of one existing runway.

Each phase of the OMP provides distinct benefits. While the maximum benefits to O’Hare will be derived from completion of the entire OMP, the City expects O’Hare to begin to experience benefits in delay reduction and capacity increases once OMP-Phase 1 is completed. The City currently estimates that upon completion of OMP-Phase 1, at a level of 974,000 annual operations and 2,750 peak month average daily operations, estimated flight delays at O’Hare will be reduced from 16.9 minutes per operation before OMP-Phase 1 to an average of 7.9 minutes per operation. While further improvements to flight delay and flight operations at O’Hare are projected upon completion of the full OMP, OMP-Phase 1 alone is expected to confer substantial benefits upon O’Hare and the airlines operating at O’Hare.

Project Components. Major project components of OMP-Phase 1 include:

• Program administration;

• Preliminary engineering for the full OMP;

• Wetlands mitigation, noise mitigation, and land acquisition and relocation services for the full OMP, including approximately 433 acres of land near the northwest and southeast quadrants of airport property, and a cemetery;

• Construction of a new runway and reconfiguration and relocation of certain existing runways consisting of:

― Construction of new Future Runway 9L-27R;

― Extension of Future Runway 10L-28R (Existing Runway 9R-27L); and

― Construction of Future Runway 10C-28C (Relocation of Existing Runway 18-36).

New Future Runway 9L-27R, including associated taxiways and other support development, is to be the first runway constructed as part of OMP-Phase 1. The purpose of this runway is to reduce aircraft delay during IFR conditions, as it will allow for a third stream of independent arriving aircraft during IFR conditions. Construction of this runway is dependent on the relocation and/or reconfiguration of various facilities, roads, waterways, and the acquisition of land near the northwest quadrant of O’Hare.

Construction of a proposed approximate 2,859-foot westward extension to existing Runway 9R-27L (future Runway 10L-28R), associated taxiways, and other support facilities will also be undertaken as part of OMP-Phase 1. This proposed extension will increase the runway’s available length to 13,000 feet. Runway 10L-28R will become the longest at O’Hare after existing Runway 14R-32L is shortened and ultimately decommissioned as part of the OMP. The relocation of navigational aids and runway approach light systems are the major enabling projects required as part of this proposed runway extension.

Future Runway 10C-28C, associated taxiways, and required support facilities also will be developed as part of OMP-Phase 1. As necessary, various improvements will also be implemented to relocate and expand existing utilities and infrastructure. Anticipated improvements include, but are not limited to, utilities (e.g., stormwater collection and detention, water supply lines, electrical, sanitary sewer system), vehicle service road segments, and perimeter fencing.

59

The OMP-Phase 1 Noise Program

The OMP-Phase 1 Noise Program is part of OMP-Phase 1, but is administered by the DOA, which has overseen prior noise abatement projects connected with O’Hare. The OMP-Phase 1 Noise Program involves providing sound insulation of the following types: installation of heating and air conditioning systems, replacement of existing windows and exterior doors with sound insulating windows and doors, the addition of insulation to exterior walls and ceilings, and the addition of baffling devices to exterior vents. None of the proceeds of the Variable Rate Series 2005 Bonds will be used to fund the OMP-Phase 1 Noise Program. The City expects to fund the costs of the OMP-Phase 1 Noise Program solely from FAA grants and PFC Revenues on either a pay-as-you-go basis or through the issuance of Double-Barreled PFC Third Lien Bonds. See “O’HARE FINANCIAL INFORMATION – Indebtedness – Issuance of Additional Airport Obligations.”

OMP Approvals

Airline Funding Approval. The City has received funding approval for OMP-Phase 1, including the OMP-Phase 1 Noise Program, from a Majority-in-Interest (“MII”) of the Airline Parties, and the City and airlines have agreed to continue negotiations for additional MII funding approvals for the full OMP. MII means during any Fiscal Year either (i) any five or more Airline Parties which, in the aggregate, paid 60 percent or more of O’Hare’s Fees and Charges paid by all Airline Parties for the preceding Fiscal Year, or (ii) any numerical majority of Airline Parties which, in the aggregate, paid 50 percent or more of O’Hare’s Fees and Charges paid by all Airline Parties for the preceding Fiscal Year.

FAA Approval. The City submitted a Final Airport Layout Plan (the “ALP”) reflecting the O’Hare Modernization Program and other proposed development to the FAA for approval in October 2003. The City received the FAA’s Record of Decision on September 30, 2005.

Clean Water Act Permit Process and Status. Section 404 of the Clean Water Act requires applicants to obtain a permit for placement of dredge or fill material into wetlands from the U.S. Army Corps of Engineers (the “USACE”). The USACE reviewed and processed a Section 404 permit application and predischarge notification for impacts associated with the OMP and the Section 404 Permit was received by the City on December 19, 2005.

60

OMP Funding

In January 2003, the City projected the cost of completing the OMP to be approximately $6.6 billion (based on 2001 dollars). In its final EIS, the FAA reviewed the City’s calculations, which the FAA estimates would now equal approximately $7.5 billion based on 2004 dollars, and stated that the City’s forecast costs of the OMP are a reasonable estimate.

The projected sources and uses of funds for OMP–Phase 1 (including the OMP-Phase 1 Noise Program) are shown in the chart below. As noted above, the City has obtained the required MII funding approvals from the Airline Parties for OMP – Phase 1. Approximately $599.9 million of the total cost of the OMP-Phase 1 will remain to be funded from future general airport revenue bonds after issuance of the Series 2005 Bonds. OMP-Phase 1 costs are expected to be funded from the following sources (taking into account escalated costs):

Estimated Sources and Uses for OMP–Phase 1 (000s)(1)

Sources Federal Grants $ 360,340 PFC Revenues 49,133 Double-Barreled PFC Third Lien Bonds 601,588 Previously Issued Airport Obligations 245,420 Series 2005 Bonds 1,023,964 Future General Airport Revenue Bonds† 599,896

Total Estimated Sources $2,880,341 Uses(1)

Program Administration $ 326,166 Preliminary Engineering 47,260 Land Acquisition / Wetlands Mitigation

and OMP-Phase 1 Noise Program 548,162

New Future Runway 9L-27R 393,471 Extension of Future Runway 10L-28R 202,962 Future Runway 10C-28C 1,362,320 Total Estimated Uses $2,880,341 (1) Total estimated costs are as of the date of this Official Statement.

† Expected to be issued by 2009.

As shown on the table above, in addition to general airport revenue bonds and PFC revenues, the

City expects to use a combination of entitlement and discretionary FAA Airport Improvement Program (“AIP”) grants for eligible O’Hare projects. Under AIP, the City receives annual entitlement grants for O’Hare based on the number of enplaned passengers and cargo tonnage at O’Hare and is eligible to receive discretionary grants. On November 21, 2005, the FAA issued to the City a Letter of Intent (“LOI”) to award $300 million in LOI discretionary grants for OMP–Phase 1 payable over a 15-year period from federal fiscal year 2006 through federal fiscal year 2020. The City expects to apply approximately $55.8 million in AIP entitlement grants through 2010 (including $18.6 million of prior entitlement grants and the $37.2 million of future entitlement grants referenced in the LOI), $300.0 million of AIP discretionary grants pursuant to the LOI during the period from 2006 through 2020, and an additional $4.5 million of discretionary grants toward implementation of OMP–Phase 1 Projects.

61

The City has approval from the FAA to impose a PFC at O’Hare and to use PFC revenue for approved O’Hare projects. The City collects a $4.50 PFC per eligible enplaned passenger, less an $0.11 airline processing charge, at O’Hare. As of September 30, 2005, the City had authority to impose and use $3.0 billion of PFC revenues at O’Hare. As of that date, PFC revenues received by the City for use at O’Hare, including investment earnings, totaled $1.3 billion, of which approximately $1 billion had been expended on approved project costs.

The City is preparing to submit an application to the FAA for authority to impose a PFC and use PFC revenues to fund runway construction projects included in OMP-Phase 1. Approximately $49.1 million of the cost of OMP-Phase 1, including a portion of the OMP-Phase 1 Noise Program, is expected to be funded with pay-as-you-go PFC revenues. Approximately $601.6 million of the cost of OMP-Phase 1, including a portion of the cost of the OMP-Phase 1 Noise Program, is expected to be funded with Double-Barreled PFC Third Lien Bonds, which the City expects to repay from PFC revenues.

Cost Control Procedures

As part of the airline funding approval for OMP-Phase 1, the airlines and the City agreed to establish a tiered management structure with each tier having specific review and approval authority. The OMP Executive Working Group (“EWG”), comprised of three City representatives and two airline representatives, meets weekly to review and discuss program scope, schedule, budgets and funding. A committee of the Airline Parties retains the right to approve increases in project component scope and budget of more than 10 percent, any financial commitment of over $5 million, and project delivery methods if construction value is greater than $20 million.

The OMP Office has assembled a team with extensive experience in large, complex aviation development programs. DMJM Aviation Partners, a joint venture led by DMJM Aviation, was selected as the Program Manager in 2004. The Program Manager has reviewed and validated the schedule and cost estimates underlying the $2.88 billion cost estimate for OMP-Phase 1. In April 2005, the OMP Office selected Parsons Brinckerhoff Construction Services to serve as lead construction manager for the OMP.

The OMP Office is also managing costs by completing design prior to award of construction contracts so that bids are based on 100% complete designs. Design has been completed on two of the major projects on the north airfield and is progressing on the remaining projects. Additional projects will be bid when design is complete.

Five-Year Capital Improvement Program

O’Hare regularly adopts a Five-Year CIP for budget and planning purposes. The current Five-Year CIP is for the years 2005 through 2009, and its total cost is $1.23 billion (in escalated dollars). None of the proceeds of the Series 2005 Bonds will be applied to the Five-Year CIP. The “Approved Portion” of the Five-Year CIP means those projects funded, or to be funded, from already approved PFC revenues, general airport revenue bonds for which the City has already received MII funding approval, AIP grants already awarded by the FAA, and funds from an Other Transaction Agreement with the Transportation Security Administration. The Approved Portion of the City’s planned Five-Year CIP for 2005 through 2009 totals approximately $622.3 million and includes terminal support improvements, terminal improvements, airfield improvements, heating and refrigeration system improvements, completion of certain noise mitigation projects (not otherwise included in the OMP-Phase 1 Noise Program), safety and security improvements, planning and other projects and implementation costs. The Five-Year CIP projects are more fully described below.

62

Terminal Support Improvements. The terminal support improvements are comprised of upgrades to critical infrastructure through rehabilitation or replacement of existing utilities serving the terminals, replacement of Airport Transit System guideway cables and wire, configuration and interconnection of the automatic vehicle identification system for ground transportation, and consolidation of Department of Aviation office space.

Terminal Improvements. The terminal improvements are designed to maximize capacity and passenger convenience currently limited by terminal space constraints, primarily through the implementation of the FACE (Facility and Circulation Enhancement) project, the principal objective of which is to provide more efficient queuing and circulation space at the departures level in Terminals 2 and 3, and improve vertical circulation in Terminals 1, 2 and 3.

Airfield Improvements. The airfield improvements will rehabilitate Taxiways W and E and numerous apron ramps, as well as improve airfield drainage and other airside facilities. Runway and taxiway improvements consist of the rehabilitation of the existing pavement and placing a new bituminous concrete overlay, various shoulder improvements, grading, grooving, drainage, and lighting adjustments. Terminal apron improvements consist of the removal and replacement of the apron pavement and drainage improvements at the passenger terminal and concourses.

Heating And Refrigeration System Improvements. Included in the Heating & Refrigeration System improvements are structural restoration/modification of the utility ring tunnel, replacement of single duty high temperature and low temperature water converters, and replacement of the north cooling tower.

Completion of Prior Noise Mitigation Projects. The noise mitigation projects include completion of existing noise mitigation program for schools and residential homes, in addition to the separate OMP-Phase 1 Noise Program.

Safety and Security Enhancements. The safety and security enhancements include studies, design and construction, and other allocable soft costs for the incorporation of explosives detection systems into the existing baggage system.

Planning and Other Projects. In addition to the above projects, the Five-Year CIP includes general land use planning.

Implementation Costs. Additional costs within the Five-Year CIP are related to program implementation, which include program planning, program management, financial feasibility, construction management and field supervision, program security, and allocable DOA staff costs.

Funding of the Approved Portion of the Five-Year CIP. The City has received MII funding approval and other funding totaling approximately $622.3 million for the Approved Portion of the Five-Year CIP, approximately $200.9 million of which has been funded with previously issued Airport Obligations, $363.0 million of which has been funded from other sources, and approximately $58.4 million of which is expected to be funded with future Airport Obligations. None of the Five-Year CIP will be funded from the proceeds of the Series 2005 Bonds. The City and the airlines are continuing to negotiate funding approvals for the remaining Five-Year CIP projects, a portion of which will be funded from sources which require no additional airline funding approvals.

63

REPORT OF THE AIRPORT CONSULTANT

General

The Airport Consultant has prepared both a “base projection” as well as a “sensitivity projection,” each of which is discussed below. The Airport Consultant believes its base and sensitivity projections are based upon reasonable evaluations of conditions as of the date of its report and reasonable assumptions regarding future conditions. Achievement of any financial projection, or any forecast, is dependent upon future events, which cannot be assured. The Report of the Airport Consultant cautions, however, that many of the factors influencing aviation demand cannot necessarily or readily be quantified, and any projection is subject to uncertainties. As a result, the projection process should not be viewed as precise and actual results will vary, perhaps materially, from the projections and forecasts presented in the Report of the Airport Consultant. See APPENDIX E – “REPORT OF THE AIRPORT CONSULTANT.”

Base Projection

The table on page 65 entitled “BASE PROJECTION PROJECTED AIRLINE COST PER ENPLANED PASSENGER 2005-2014” presents projected airline cost per enplaned passenger calculations for O’Hare for the period 2005 through 2014 as prepared by the Airport Consultant. For each calendar year, the airline cost per enplaned passenger is calculated by dividing the “total airline requirement” of O’Hare excluding the Land Support Area by the total number of enplaned passengers for that year. Total airline requirement is equal to operation and maintenance expenses, debt service requirements and fund deposit requirements less non-airline revenues. The Report of the Airport Consultant estimates cost per enplaned passenger for 2005 to be $9.02 in current dollars. The Report of the Airport Consultant projects that during the projection period, the total cost per enplaned passenger would reach a high of $16.21 in 2014 (equal to $12.42 in 2005 dollars).

The Airport Consultant prepared these projections based on the most current information available as of December 14, 2005, the date of the Report of the Airport Consultant. The base projection set forth in the Report of the Airport Consultant was prepared based on certain assumptions which are set forth therein, including assumed debt service on the Fixed Rate Series 2005 Bonds and the Variable Rate Series 2005 Bonds, and additional Airport Obligations expected to be issued to refund and restructure outstanding airport indebtedness and to provide for the financing of the remainder of OMP-Phase 1 and the approved portion of the Five-Year CIP at O’Hare. In addition, these projections include general assumptions about certain economic and demographic statistics such as population, employment and effective buying income in the Chicago Region. See APPENDIX E – “REPORT OF THE AIRPORT CONSULTANT.”

Conclusion. In the Report of the Airport Consultant, the Airport Consultant expressed its opinion that sufficient revenues will be generated to pay the O&M Expenses, Debt Service, and fund deposit requirements at O’Hare during the projection period 2005 through 2014 through a combination of nonairline revenue sources and airline rates and charges. The Airport Consultant is also of the opinion that airline rates and charges at O’Hare are projected to be reasonable on an airline cost per enplaned passenger basis compared to other large-hub U.S. airports.

Assumptions. The base projections of the Airport Consultant are based upon the assumptions described in the REPORT OF THE AIRPORT CONSULTANT attached as APPENDIX E. Included among the assumptions made by the Airport Consultant are certain underlying assumptions regarding the enplaned passenger projections. These underlying assumptions include assumptions that:

64

• Passenger activity at O’Hare has recovered from the effects of September 11 and the nationwide economic slowdown. The broad expansion in U.S. economic activity during the latter half of 2003 and most of 2004 is expected to continue into 2005 and 2006 and, over the entire projection period, U.S. economic growth is expected to increase at a compounded annual growth rate of 3.2 percent;

• Domestic mainline carriers will continue to shift certain traffic to their respective regional/commuter partners during the projection period through 2014, resulting in a higher growth rate for the regional/commuter airlines compared to the majors/nationals;

• United will successfully emerge from bankruptcy, and United and American will continue to operate major connecting hubbing facilities at O’Hare. The connecting passenger percentages for domestic and international passengers will remain constant at their 2004 levels during the projection period;

• A broad base of airlines will continue to serve O’Hare with United and American continuing to dominate market share;

• Demand for air service in the Chicago Region will continue to be predominantly served through O’Hare, particularly for international air traffic and non-stop travel to the area’s top 50 O&D markets with Midway continuing to serve a distinct market segment in the Chicago Region;

• If the proposed South Suburban Airport near Peotone, Illinois is constructed and begins operations, such airport would not be expected to attract significant demand away from O’Hare during the projection period;

• Although the FAA’s operating limitations are currently only in place at O’Hare through April 1, 2006, it is assumed that operating limitations will be in place at O’Hare through April 2008 to coincide with the projected opening of Future Runway 9L-27R;

• Airline consolidations/mergers or bankruptcies that may occur during the projection period will not negatively affect numbers of enplaned passengers at O’Hare and new airline alliances, should they develop, will be restricted to code sharing and joint frequent flyer programs, and will not reduce airline competition at O’Hare;

• Consistent with assumptions made by the FAA in formulating its nationwide projections, it is assumed there will not be terrorist incidents against either domestic or world aviation operations during the projection period; and

• The capacity of the aviation industry will not undergo a major contraction through bankruptcy, consolidation or liquidation during the projection period and, while strategies and success levels can be expected to differ among air carrier groupings, the aviation industry in aggregate will not be materially altered during the projection period.

While the Airport Consultant believes that the approach and assumptions used are reasonable, the Airport Consultant advises that some assumptions regarding future trends and events detailed in its Report including, but not limited to, implementation schedule and enplanement projections, may not materialize. Achievement of the projections presented in the Report of the Airport Consultant, therefore, is dependent upon the occurrence of future events, which cannot be assured, and the variations may be material.

65

BASE PROJECTION

PROJECTED AIRLINE COST PER ENPLANED PASSENGER 2005-2014

Budget Projected 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Net Airline Party(1) Requirement $325,626 $372,171 $442,342 $479,537 $460,705 $467,196 $587,212 $608,463 $638,733 $667,179 Non-Airline Party Requirement 14,979 16,636 19,685 22,171 22,386 23,191 33,402 33,758 35,180 36,096 Total Airline Requirement $340,605 $388,807 $462,027 $501,708 $483,091 $490,387 $620,614 $642,221 $673,913 $703,275 Total Projected Enplaned Passengers 37,765 38,622 39,472 40,064 40,663 41,260 41,802 42,330 42,860 43,390 Total Airline Cost Per Enplaned Passenger Current Dollars $9.02 $10.07 $11.71 $12.52 $11.88 $11.89 $14.85 $15.17 $15.72 $16.21 2005 Constant Dollars(2) $9.02 $9.77 $11.03 $11.46 $10.56 $10.25 $12.43 $12.34 $12.41 $12.42 _______________________ Source: Report of the Airport Consultant dated December 14, 2005. (1) Includes the Airline Parties and signatories to the International Terminal Use Agreements. (2) Using an assumed annual inflation rate of 3 percent.

66

FAA Analysis

In addition to the analysis presented by the Airport Consultant in its Report, the FAA has reviewed the O’Hare Capital Development Programs, including the OMP, and concluded the following in the final EIS: “FAA has no reason to believe that the resulting costs to airport users (most significantly, airlines serving O’Hare) will significantly adversely affect the ability to finance the capital projects and realize the projected aviation demand, particularly in the context of future investments that will be required at other large hub airports in the United States.”

Sensitivity Projection

Set forth above are a number of assumptions made by the Airport Consultant in the development of its base projections for aviation activity at O’Hare. Implicit in those assumptions was that the nature of airline traffic at O’Hare, specifically the mix of O&D and connecting passengers, would remain constant through the projection period. Given the uncertainties facing the aviation industry today, the Airport Consultant developed an alternative, hypothetical scenario reflecting a reduction in the number of enplaned passengers, in which United Airlines, including its regional commuters/partners (collectively for purposes of the Sensitivity Projection, “United”) is assumed to cease operations at O’Hare. In 2004, United’s enplanements at O’Hare consisted of approximately 40 percent O&D passengers and approximately 60 percent connecting passengers. For purposes of the sensitivity analysis, it was assumed that United would have continued to enplane the same passenger mix. While the sensitivity analysis is not based on specific air traffic recovery events, a number of events could take place that would mitigate the impact of the loss of United’s activity. These events include increased airline competition at O’Hare for market share, increased activity by any existing carrier(s), and/or United Express carriers becoming regional/commuter partners with any existing carrier(s).

Conclusion. The Airport Consultant has determined that if a scenario similar to the one analyzed in the sensitivity projection were to materialize at O’Hare, the resultant airline cost per enplaned passenger appears reasonable compared to the cost per enplaned passenger at other large-hub airports. Specifically, the Airport Consultant projects that the number of enplaned passengers would increase from an estimated 37.8 million in 2005 to 43.4 million in 2014, the Debt Service coverage requirement of 1.10 would be met each year through 2014, and the cost per enplaned passenger would increase from an estimated $9.02 in 2005 to a high of $17.13 in 2007 and 2011 and would decrease to $16.21 in 2014, all in escalated dollars.

Additional Assumptions. In developing its sensitivity projection, the Airport Consultant made certain additional underlying assumptions, which include the following:

• United ceases operations at O’Hare on December 31, 2005;

• The scope and cost of the OMP will not be modified in response to United’s cessation of operations;

• It takes four years to recover O&D passenger levels served by United with the following retained percentages of United’s O&D passengers from the Base Projection: 70 percent in 2006, 80 percent in 2007, 90 percent in 2008, and 100 percent by the end of 2009. Other airlines are assumed to absorb this displaced O&D passenger demand. O&D passenger traffic returns to Base Projection numbers in 2009;

• United’s current percentage of connecting passenger traffic versus O&D traffic is approximately 60 percent;

67

• Only 10 percent of United’s connecting passengers were assumed to connect through O’Hare on other air carriers in 2006, gradually increasing each year through 2014 with full recovery of connecting passengers in 2014;

• Total O’Hare enplaned passenger number recovers to 2005 levels in 2012;

• Aircraft operations and landed weight were adjusted using the same methodology used to determine the relationships among enplaned passengers, aircraft operations, and landed weight in the base projection;

• PFC revenue decreases in direct proportion to the decrease in enplaned passengers;

• Certain Non-Airline Revenues are reduced. Automobile parking and automobile rental revenue is reduced in proportion to the decrease in O&D passengers. Restaurant and news & gifts revenues are reduced in proportion to the reduction in the total number of enplaned passengers; and

• Certain Terminal Area O&M Expenses for energy, materials and supplies, and repairs and maintenance are reduced eight percent in 2006, 2007, and 2008 and four percent in 2009, 2010 and 2011, and return to the Base Projection in 2012.

[Remainder of page intentionally left blank]

68

FEDERAL LEGISLATION, STATE ACTIONS, AND PROPOSED SOUTH SUBURBAN AIRPORT

Federal Legislation

The Aviation and Transportation Security Act (“ATSA”) was enacted in November 2001 and created the Transportation Security Administration (“TSA”) to establish different and improved security processes and procedures at the nation’s airports. The ATSA mandates certain individual, cargo and baggage screening requirements, security awareness programs for airport personnel and deployment of explosive detection devices. The ATSA also permits the deployment of air marshals on all flights and requires air marshals on all “high-risk” flights. To finance these federal security services, the ATSA provides for payment by the airlines of approximately $700 million, estimated to be the cost of providing such services prior to the events of September 11, 2001, and imposes a passenger fee of $2.50 for each flight segment, not to exceed $5.00 per one-way trip.

In November 2002, Congress enacted the Homeland Security Act of 2002 (the “HSA”), which created the Department of Homeland Security (“DHS”) to accomplish several primary goals: (i) prevent terrorist attacks within the United States; (ii) reduce the nation’s vulnerability to terrorism; (iii) minimize the damage of and assist in the recovery from terrorist attacks that do occur; and (iv) and monitor connections between illegal drug trafficking and terrorism and coordinate efforts to sever such connections. The TSA is now a part of the DHS.

The HSA extended the federal government’s guarantee of war-risk insurance to airlines through at least August 31, 2006 and, at DHS’s option, through December 31, 2006. The HSA caps the total premium paid by any airline for war-risk insurance at no more than twice the premium the airline was paying the U.S. DOT for its third-party policy as of June 19, 2002. The HSA also requires that carriers include methods of self-defense within their security training programs for flight attendants. The HSA also requires DHS to establish a program for arming pilots, though participation in the program remains voluntary.

State Actions The State, certain State agencies and certain State legislators have taken certain actions that may affect O’Hare and the City’s ability to collect Revenues.

Noise Legislation. Legislation with respect to aircraft noise has been proposed from time to time in the Illinois General Assembly. There is no assurance that legislation with respect to aircraft noise will not be proposed or enacted in the future, or that if enacted it would not have a material adverse affect on operations, enplanements and Revenues at O’Hare.

State Airport Control Legislation. In past years, legislation has been introduced in the Illinois General Assembly that was intended to reduce the City’s control over O’Hare and Midway and promote the development of a third regional airport at a location in Chicago’s far southern suburbs near Peotone, Illinois. The City vigorously opposed this legislation and the Illinois General Assembly has not enacted any of these proposals. It is possible that similar legislation could be considered in the future by the Illinois General Assembly. No prediction is made as to whether or in what form any such legislation may be adopted or what effect any such legislation, if enacted, would have on the financial condition or operations of O’Hare. See “−Proposed South Suburban Airport” below.

69

Proposed Tollway. In 1995, the Illinois General Assembly passed Joint Resolution 45, which stated that the Illinois State Toll Highway Authority is authorized to expand the toll highway system to include a bypass to be constructed generally around the western edge of O’Hare between Interstate 90 near Elmhurst Road and Interstate 294 near Grand Avenue, with an extension to be constructed in a generally east/west direction between Interstate 290 near Thorndale Avenue on the west and the bypass on the east. A joint resolution authorizing a particular toll highway expansion is required before bonds may be issued for the expansion. Despite the passage of the joint resolution, Illinois law prohibits the issuance of bonds to finance the bypass and extension until a public hearing on the toll highway expansion is conducted, and until preliminary plans and cost estimates for the expansion have been submitted to and approved by the Governor. The proposed location of the bypass and extension would impact and could possibly preclude certain future O’Hare development options.

O’Hare Modernization Act. The O’Hare Modernization Act, 620 ILCS 65/1, which became law in August 2003, is intended to expedite and facilitate the OMP. Specifically, the O’Hare Modernization Act states the General Assembly’s intent that “all agencies of this State and its subdivisions shall facilitate the efficient and expeditious completion” of the OMP. Among other things, the O’Hare Modernization Act eliminates duplicative aeronautics review of the OMP under the Illinois Aeronautics Act and grants quick-take authority to the City for land acquisition associated with the OMP. The O’Hare Modernization Act also amends other laws to facilitate the OMP.

State Approval of Federal Grants. Under the Illinois Aeronautics Act, the City is generally required to obtain the approval of Illinois Department of Transportation (“IDOT”) for all AIP grant applications that the City submits to the FAA. The O’Hare Modernization Act provides that this requirement does not apply to AIP grant applications related to the O’Hare Modernization Program and further provides that the City may directly accept, receive and disburse AIP grant funds related to the O’Hare Modernization Program.

Future Legislation. O’Hare is subject to various laws, rules and regulations adopted by the local, State and federal governments and their agencies. The City is unable to predict the adoption or amendment of any such laws, rules or regulations, or their effect on the operations or financial condition of O’Hare.

Proposed South Suburban Airport

Plans to build a third airport in the Chicago Region have been on the drawing board since the 1980s. In 1992, the then-Governor of Illinois announced the State’s intention to pursue the concept of a third commercial service airport in northeastern Illinois. The most likely site for such an airport is the proposed South Suburban Airport site located near Peotone, Illinois (in Will County approximately 37 miles south of the City’s central business district).

In 2001, the FAA published notice of a public comment period for a Tier I Draft Environmental Impact Statement (“EIS”) for Site Approval and Land Acquisition by the State at the Peotone site, to preserve the site as a potential option for a commercial service airport for the Chicago area. The draft EIS identified the potential environmental effects associated with the proposed site, as well as the proposed acquisition of land, and was approved by the FAA in July 2002 in a Record of Decision by the FAA which found that the Peotone site was technically and environmentally feasible for a new airport to serve the region.

In 2002, the State received $3 million in federal funds for Tier II work. Tier II work includes initial work on the airport Master Plan and the final EIS. As of October 21, 2005, approximately 1,874 acres have been purchased by the State for the Peotone site.

70

Competing groups from Will County and a coalition of south suburban and northwest suburban communities have publicly expressed interest in planning and developing an airport on the land the State has already acquired. The State has neither endorsed nor accepted either of these proposals and it is unclear at this time who would ultimately control the development and operation of such an airport, if such development proceeds.

It is not possible at this time to determine the viability of a new major commercial airport at the Peotone site or to predict whether or when any new regional airport would be constructed; nor is it currently possible to predict what effect, if any, such an airport would have on operations or enplanements at O’Hare. In its final EIS for the OMP issued in July 2005, the FAA concluded that the proposed South Suburban Airport, if opened, would result in an insignificant reduction in total aircraft operations at O’Hare. See “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY, AND O’HARE – Factors Affecting O’Hare – Proposed South Suburban Airport.” In its ROD for the OMP, the FAA concluded, among other things, that “the practical limit of potential diversion of demand from O’Hare is estimated to be far less than the likely availability of capacity at other regional airports” including the proposed South Suburban Airport. The FAA further concluded that “as a result, it was determined that the use of other regional airports would not, by itself, be sufficient to satisfy the purpose and need” for the OMP. The establishment of a third major commercial service airport in northeastern Illinois, however, could have a material adverse impact on the number and growth of enplanements at O’Hare and the amount of Revenues collected at O’Hare in future years. Neither the State of Illinois nor the FAA currently forecasts that a proposed South Suburban Airport will achieve the status of a third major commercial service airport in the foreseeable future. See “SECURITY FOR THE VARIABLE RATE SERIES 2005 BONDS – Airport Use Agreements.”

CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES,

THE AIRLINE INDUSTRY, AND O’HARE

Aviation Industry

Overall. The City’s ability to collect Revenues is affected by the dynamics of the airline industry, which also impact the ability of the Airline Parties, individually and collectively, to meet their respective obligations under the Airport Use Agreements and other arrangements.

The U.S. aviation industry has been significantly affected by a number of events that occurred earlier this decade (including the events of September 11, the economic slowdown, the outbreak of SARS in Asia and Canada, and the Middle East conflicts). These events contributed to substantial financial losses for the aviation industry between 2001 and 2005 year-to-date. Currently, escalating fuel prices and lowered fares continue to hinder the ability of legacy carriers to be profitable on an annual basis. Since the events of September 11 and the economic slowdown, several U.S. airlines and Air Canada filed for bankruptcy protection, including the following:

• US Airways filed for bankruptcy protection under Chapter 11 on August 11, 2002. US Airways and seven subsidiaries subsequently emerged from Chapter 11 on March 31, 2003. US Airways again filed for bankruptcy protection under Chapter 11 on September 12, 2004. On May 19, 2005, US Airways and America West announced a merger agreement, subject to approval by the U.S. Bankruptcy Court overseeing US Airways’ pending Chapter 11 case and transaction closing. On September 16, 2005, US Airways received final approval from the U.S. Bankruptcy Court to exit bankruptcy protection and merge with America West. On September 27, 2005, US Airways completed its merger with America West.

71

• United Airlines filed for bankruptcy protection under Chapter 11 on December 9, 2002. See “Financial Conditions of Airlines Serving O’Hare – United Airlines,” below, for a more detailed account of United’s bankruptcy filing.

• Hawaiian Airlines filed for bankruptcy protection under Chapter 11 on March 21, 2003, and emerged from Chapter 11 on June 1, 2005.

• Air Canada filed for reorganization under Canada’s Companies’ Creditors Arrangement Act on April 1, 2003, and emerged from bankruptcy protection on September 30, 2004.

• Midway Airlines was placed into Chapter 7 liquidation by a U.S. bankruptcy court judge on November 30, 2003.

• Atlas Air-Polar Air Cargo filed for bankruptcy protection under Chapter 11 on January 30, 2004, and emerged from Chapter 11 on July 27, 2004.

• American Trans Air (ATA) filed for bankruptcy protection under Chapter 11 on October 26, 2004. On December 21, 2004, the U.S. Bankruptcy Court granted approval for Southwest Airlines to acquire lease rights to six gates and a maintenance hangar at Midway for $40 million, to provide $47 million in financing, and an investment of $30 million in ATA once it emerges from Chapter 11. The agreement created the first significant code-share arrangement for both airlines, which became effective on February 4, 2005. On September 30, 2005, ATA filed its Plan of Reorganization, which contemplates a sale of ATA securities to Matlin Paterson and a related transfer of: (i) lease rights to four passenger gates at Midway to Southwest; (ii) return of three passenger gates at Midway to the City; and (iii) the retention by ATA of one passenger gate at Midway. The Plan of Reorganization also anticipates ATA’s emergence from bankruptcy on January 23, 2006.

• Aloha Airlines filed for bankruptcy protection under Chapter 11 on December 30, 2004.

• Delta Airlines filed for bankruptcy protection under Chapter 11 on September 14, 2005.

• Northwest Airlines filed for bankruptcy protection under Chapter 11 on September 14, 2005.

• Mesaba Airlines filed for bankruptcy protection under Chapter 11 on October 13, 2005.

• Independence Air filed for bankruptcy protection under Chapter 11 on November 7, 2005.

According to the FAA, even before the events of September 11 aviation activity nationwide was in a weakened state and the airline industry was projected to experience a significant financial downturn. Also, according to the FAA, passenger demand began to decline in February 2001 and air carrier finances in general turned negative in the first quarter of calendar year 2001, primarily due to declining high-yield business traffic and rapidly escalating labor costs. In response to weaker demand following the events of September 11, airlines were forced to reduce fares to stimulate demand, creating a further reduction in airline revenues. According to the Air Transport Association, the financial condition of the U.S. airline industry remains poor and a long recovery period is projected before the industry returns to profitability. The Air Transport Association estimates that in 2005 the industry will generate approximately $6 billion in losses in addition to the $32.3 billion in losses incurred between 2001 and 2004.

Recent Changes to the Aviation Industry. The airlines have responded to the changing nature of the industry through a variety of actions, including the furloughing of employees. According to the U.S. Department of Transportation (“DOT”), the number of full-time and part-time employees at certificated carriers has decreased by approximately 110,000, from approximately 730,000 employees in 2000 to

72

approximately 620,000 employees in 2004. Additionally, the airlines have negotiated significant wage reductions, deferred aircraft deliveries, streamlined operations, and improved productivity. However, high fuel prices coupled with intense fare competition, as well as high levels of debt and unfunded pension obligations, are anticipated to hinder the industry’s financial recovery.

Faced with the growth of lower-cost airlines, and evolving business technology, legacy airlines have been forced to change their business practices. Many businesses have switched to lower-cost carriers and/or implemented significant reductions in business travel. As a result, carriers that once structured their services around the business traveler during the economic expansion in the 1990s have been forced to reduce or eliminate service on unprofitable routes, reduce work force, implement pay cuts, and reduce fares in order to compete with lower-cost carriers.

Another major tangible change in the airline industry has been the significantly increased use of smaller, regional jets. According to the DOT, scheduled flights nationwide on regional jets increased from 91,960 monthly departures in July 2000 to 294,698 in July 2005, a compounded annual growth rate of 26.2 percent during this period. The DOT projects that scheduled regional jet traffic will account for 32 percent of scheduled domestic flights in July 2005, compared to 10 percent in July 2000.

Other trends that have emerged include (i) more widespread use of simplified fare structures, (ii) the growth of competition by lower-cost carriers in long haul markets, (iii) increased efficiency and productivity, and (iv) declining real fares. For additional information see “OPERATIONS AT O’HARE – Airlines Providing Service at O’Hare” and “– Financial Condition of Airlines Serving O’Hare.”

Financial Condition of Airlines Serving O’Hare

Many of the airlines serving O’Hare have been impacted by the events described above. Most major domestic airlines have suffered recent financial losses. Current and future financial and operational difficulties encountered by the airlines serving O’Hare, most notably United Airlines and American Airlines, which along with their regional/commuter partners, collectively accounted for 84.9% of the total enplaned passengers at O’Hare in 2004, could have a material adverse effect on operations at, and the financial condition of, O’Hare.

United Airlines. Based on enplanements, United Airlines is the largest airline operator at O’Hare with 38.0 percent of mainline enplaned passengers in 2004 (48.5 percent of total enplaned passengers when including its regional/commuter partners). On December 9, 2002, shortly after the Air Transportation Stabilization Board (“ATSB”) rejected its application for a $1.6 billion loan guaranty, United’s parent corporation, UAL Corporation (“UAL”), along with certain of its subsidiaries, including United Airlines, filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. The Chapter 11 filing allows UAL and certain subsidiaries to continue operations while developing a plan of reorganization to address existing debt, capital and cost structures. In connection with this bankruptcy filing, the bankruptcy court approved $1.5 billion in debtor-in-possession financing. In April 2003, UAL secured bankruptcy court approval for $2.56 billion in labor concessions over the next six years. On July 23, 2004, UAL negotiated an agreement to amend its debtor-in-possession financing credit facilities, which provided UAL with an additional $500 million in available funds.

UAL reported losses of $8.2 billion between 2001 and 2004, as well as a $250 million loss for the quarter ended March 2005, compared to a $211 million loss for the quarter ended March 2004. Excluding special and reorganization costs, UAL reported a net loss of $26 million for the quarter ended June 30, 2005, and a net gain of $68 million for the quarter ended September 30, 2005. Since December 2002, UAL has taken steps toward restructuring its operations. Currently, UAL is reducing its domestic capacity by 12 percent, while increasing international capacity by 14 percent, for an overall system wide capacity reduction of 3 percent. UAL is in the process of reducing its fleet to 455 aircraft, which is 68

73

fewer than it flew in August 2004, and 112 fewer (or nearly 20 percent of its fleet) since 2002. In 2005, UAL ratified labor agreements with four of its six unions. Also in 2005, UAL received court approval of a settlement agreement with the Pension Benefit Guarantee Corporation regarding the termination of further financial responsibility by United for its defined benefit pension plans.

On September 7, 2005, UAL filed a Plan of Reorganization and Disclosure Statement with the U.S. Bankruptcy Court for the Northern District of Illinois. UAL has stated that it plans to exit bankruptcy protection by February 1, 2006.

Since the initial bankruptcy filing, United Airlines has maintained operations at O’Hare. There can be no assurance that the reorganization plan proposed by UAL will be approved. The current deadline for United Airlines to assume or reject its Airport Use Agreement is the confirmation date of its Plan of Reorganization. United’s Plan of Reorganization seeks to extend this deadline until a Final Order is entered in its declaratory action litigation described below.

The City cannot predict whether United Airlines will assume or reject its Airport Use Agreement as part of the bankruptcy proceeding. See “– Effect of Airline Bankruptcy” below. Furthermore, no assurance can be given that United Airlines will continue to operate at O’Hare. If United Airlines ceases operations at O’Hare for any reason, the current level of activity of United Airlines at O’Hare may not be replaced by other airlines, and the cost to the other airlines of operating at O’Hare will increase significantly (thus increasing the total cost per enplaned passenger at O’Hare).

The City has no information regarding the financial condition of United and its future plans generally, and with regard to O’Hare in particular, other than from United’s filings with the United States Securities and Exchange Commission (the “SEC”), the United States Bankruptcy Court for the Northern District of Illinois (the “Bankruptcy Court”), and press releases. This information about United can be obtained directly from the SEC website, http://www.sec.gov, and the Bankruptcy Court website, http://www.ilnb.uscourts.gov. Neither the City nor the Underwriters undertake any responsibility for, or make any representations as to the accuracy or completeness of or the content of information available from the SEC or the Bankruptcy Court, including, but not limited to, updates of such information or links to other internet sites accessed through the SEC or the Bankruptcy Court web sites.

United Special Facility Bonds. Approximately $601,275,000 million in aggregate principal amount of Special Facility Bonds, issued by the City to finance or refinance certain capital projects at O’Hare for United Airlines (the “United Special Facility Bonds”), are currently outstanding. Since the bankruptcy filing, United Airlines has failed to pay debt service on the United Special Facility Bonds. UAL has asserted that the United Special Facility Bonds (as well as certain special facility revenue bonds relating to other airports) constitute unsecured pre-petition debt of United Airlines.

The Airport Use Agreement between the City and United Airlines contains a provision (the “Provision”) to the effect that United Airlines’ continued rights to use and occupy its exclusive use premises (including passenger gates, hold rooms, ticket counters, baggage handling facilities and office space) at O’Hare shall be conditioned upon the performance and observance by United Airlines of its covenants and agreements in the special facility agreements related to the United Special Facility Bonds (“United Special Facility Agreements”). The United Special Facility Agreements require United Airlines to pay debt service on the United Special Facility Bonds.

On September 18, 2003, UAL filed its Complaint of Debtor-Plaintiff for Declaratory Judgment in the U.S. Bankruptcy Court (the “Complaint”) seeking a declaration that United Airlines’ Airport Use Agreement is independent from the United Special Facility Agreements, that the Provision is unenforceable and that the United Special Facility Bonds are unsecured pre-petition indebtedness of

74

United Airlines. The City and the Bond Trustees under the trust agreements related to the United Special Facility Bonds were named as defendants. The City filed a counterclaim against UAL and a cross-claim against each of the United Bond Trustees alleging that the United Bond Trustees have no rights under the United Airlines Airport Use Agreement and the City has no duty to enforce the Provision on behalf of the United Bond Trustees. Each of the United Bond Trustees filed a counterclaim against UAL.

On October 14, 2004, UAL filed a motion in the U.S. Bankruptcy Court for approval of a proposed settlement agreement between it, the United Bond Trustees and certain owners of the United Special Facility Bonds. The City is not a party to the proposed settlement, and the proposed settlement does not address the City’s counterclaim against UAL or the City’s cross-claims against each of the United Bond Trustees relating to the Provision.

On October 5, 2005, a hearing was held in the U.S. Bankruptcy Court on UAL’s complaint for a declaratory judgment that the Provision is unenforceable and the City’s counterclaim that the Provision is enforceable. Subsequent to that hearing, the parties have filed post-trial briefs and are awaiting a decision by the court. The enforceability of the Provision must be determined before United can elect to assume or reject its Airport Use Agreement. If the Provision is found to be enforceable, the City intends to negotiate with United regarding the conditions for the continued use and occupancy by United of its former exclusive use premises at O’Hare. If the Provision is found to be unenforceable, United could elect to assume its Airport Use Agreement with its rights to use and occupy its exclusive use premises at O’Hare unaffected by the Provision.

American Airlines. In 2004, American Airlines (including its regional/commuter partner, American Eagle) accounted for 36.4 percent of enplaned passengers at O’Hare. For additional information, see “OPERATIONS AT O’HARE – Airlines Providing Service at O’Hare.”

For the fiscal year ended December 31, 2004, AMR Corporation (“AMR”), the parent company of American Airlines, reported a $761 million loss, compared to a $1.2 billion loss for the year ended December 31, 2003; and a net profit of $58 million for the quarter ended June 30, 2005, compared to a net profit of $6 million (which included a $31 million benefit from special items) for the quarter ended June 30, 2004. The second quarter net profit was AMR’s first profitable quarter, without the benefit of special items, since the fourth quarter of 2000. Due to record high fuel prices during Hurricanes Katrina and Rita, the impact of low cost carriers, and airlines restructuring in bankruptcy, AMR reported a net loss of $153 million in the quarter ended September 30, 2005, compared to a net loss of $214 million for the quarter ended September 30, 2004.

AMR has also taken steps toward restructuring its operations, including de-peaking its activity at O’Hare and at Dallas/Fort Worth International Airport, downsizing its hub at Lambert-St. Louis International Airport, simplifying its aircraft fleet, and automating customer ticketing and check-in functions. In April 2003, AMR’s labor unions approved $1.8 billion in annual concessions as part of an overall $4 billion annual cost reduction plan.

Additional Airline Information. The Airline Parties (including the corporate parents of United Airlines, American Airlines, and Northwest Airlines) and certain other airlines operating at O’Hare (or their respective parent corporations) file reports and other information (collectively, the “SEC Reports”) with the SEC. Certain information, including financial information, as of particular dates concerning each of the Airline Parties (or their respective parent corporations) is included in the SEC Reports. The SEC Reports can be read and copied at the SEC’s Public Reference Rooms, which can be located by calling the SEC at 1-800-SEC-0330. In addition, electronically filed SEC Reports can be obtained from the SEC’s web site at http://www.sec.gov. Each Airline Party and certain other airlines are required to file periodic reports of financial and operating statistics with the United States Department of Transportation. Such reports can be inspected at the Office of Airline Information, Bureau of

75

Transportation Statistics, Department of Transportation, Room 4201, 400 Seventh Street S.W., Washington, DC 20590, and copies of such reports can be obtained from the Department of Transportation at prescribed rates. Non-U.S. airlines also provide certain information concerning their operations and financial affairs, which may be obtained from the respective airlines.

Effect of Airline Bankruptcy As discussed above, United Airlines, Delta Air Lines, Northwest Airlines, Mesaba Airlines,

Independence Air, US Airways, and ATA, among others, have filed plans for reorganization under Chapter 11 of the United States Bankruptcy Code. Other U.S. airlines may file for bankruptcy protection in the future. See “– Uncertainties of the Airline Industry” and “– Financial Condition of Airlines Serving O’Hare” above. The cessation of operations by an Airline Party with significant operations at O’Hare, such as United Airlines or American Airlines, could have a material adverse effect on operations, Revenues and the cost to the other airlines of operating at O’Hare.

Currently, all domestic gates and related facilities at O’Hare are exclusively leased by the City to the Airline Parties pursuant to the Airport Use Agreements, with the exception of one domestic gate that is operated on a common use basis. All international gates are operated on a common use basis. In the event of bankruptcy proceedings involving an Airline Party, the debtor or its bankruptcy trustee must determine within a time period determined by the court whether to assume or reject the applicable Airport Use Agreement. In the event of assumption, the debtor would be required to cure any prior defaults and to provide adequate assurance of future performance.

Rejection of an Airport Use Agreement by any Airline Party that is a debtor in a bankruptcy proceeding would result in the termination of that Airport Use Agreement. Such rejection of an Airport Use Agreement would give rise to an unsecured claim of the City against the debtor’s estate for damages, the amount of which is limited by the Bankruptcy Code. After application of certain reserve funds, the amounts unpaid by the Airline Party as a result of its rejection of an Airport Use Agreement in bankruptcy would be included in the calculation of the fees and charges of the remaining Airlines Parties under their Airport Use Agreements. See APPENDIX C – “SUMMARY OF CERTAIN PROVISIONS OF AIRPORT USE AGREEMENTS – General Commitment to Pay Airport Fees and Charges.”

To date, while there has been no substantial change in United’s gate usage at O’Hare while it has been operating in bankruptcy, it is not possible to predict whether or not such utilization by United will continue during the period United remains as a debtor-in-possession under its Airport Use Agreement. It is also not possible to predict the effect on gate usage due to the bankruptcies of any other Airline Party. Decreased utilization of gates could have a material adverse effect on operations at O’Hare, Revenues and on the cost to the airlines of operating at O’Hare.

On December 12, 2003 President Bush signed into law the Vision 100 – Century of Aviation Reauthorization Act (“Vision 100”). Vision 100 requires an airline that files for bankruptcy protection, or that has an involuntary bankruptcy proceeding commenced against it, to segregate passenger facility revenue in a separate account for the benefit of the eligible agencies entitled to such revenue. Prior to the amendments made by Vision 100 to allow PFCs collected by airlines to constitute a trust fund, at least one bankruptcy court indicated that PFC revenues held by an airline in bankruptcy would not be treated as a trust fund and would instead be subject to the general claims of the unsecured creditors of such airline. In connection with another bankruptcy proceeding prior to Vision 100, a different bankruptcy court entered a stipulated order establishing a $7.5 million PFC trust fund for the benefit of various airports to which the bankrupt airline was not current on PFC payments. While Vision 100 should provide some protection for airports in connection with PFC revenues collected by an airline in bankruptcy, no assurances can be given as to the approach bankruptcy courts will follow in the future. See “OPERATIONS AT O’HARE – PFC Program.”

76

Factors Directly Affecting Airlines Cost of Aviation Fuel. According to the Air Transportation Association, the current historically

high price of aviation fuel is impairing the profitability of the U.S. airline industry and is the most significant force currently affecting the industry. The average price of jet fuel increased from $0.81 per gallon in 2000 to $1.15 per gallon in 2004. With similar levels of consumption, the airlines paid approximately $5 billion more for fuel in 2004 than in 2000. According to the Air Transport Association, every one-cent increase in the price per gallon of jet fuel increases annual airline operating expenses by approximately $190 million.

In November 2005, the Air Transport Association projected that the airline industry will pay approximately $9 billion more for fuel in 2005 than in 2004. The price of jet fuel has forced some airlines to find ways of becoming more fuel efficient by, among other actions, using newer, more fuel-efficient airplanes, using only a single engine for taxiing, lowering cruise speeds, and implementing onboard weight reductions, more direct routes, and other measures. In the initial years following the events of September 11 and the nationwide economic slowdown, some U.S. airlines attempted to pass the higher fuel costs on to consumers by imposing a fuel surcharge. These efforts met with only limited success as many airlines, particularly lower-cost carriers, refused to match the increase in a number of instances. Recently, with the significant increases in fuel prices in the last several months, airlines are more consistently matching fuel surcharges imposed by other airlines.

Industrywide, airlines still spend more on labor than fuel; however, the gap is narrowing as fuel has increased to more than $2.00 per gallon in recent months and airlines have aggressively cut or restrained labor costs. According to the Air Transport Association, in 2004 labor accounted for 31 percent of industry expenditures while fuel accounted for 17 percent. In 2003, these percentages were 36 percent and 13 percent respectively. For the second quarter of 2005, Air Tran, America West, Jet Blue and US Airways each reported paying more for fuel than for labor.

While airlines have hedged fuel prices through the purchase of oil futures contracts, the amount of hedged fuel cost has varied greatly by airline and is limited by an individual airline’s financial condition. The substantial increase in fuel prices has had a significant impact on profitability and future increases or sustained higher prices could affect airfares and airline service.

Impact of Economic Challenges to the Airline Industry on O’Hare. Continued increases to the cost of aviation fuel during the projection period could negatively impact activity at O’Hare. Higher fuel prices may delay or seriously hinder United’s plan for emerging from bankruptcy court protection, and may hasten the need for other carriers serving O’Hare to seek bankruptcy court protection (e.g., Delta and Northwest filing for bankruptcy court protection on September 4, 2005; Mesaba Airlines filing for bankruptcy court protection on October 13, 2005; and Independence Air filing for bankruptcy court protection on November 7, 2005).

Threat of Terrorism. As has been the case since the events of September 11, 2001, the recurrence of terrorism incidents against either domestic or world aviation during the projection period of 2006-2014 remains a risk to achieving the activity projections contained herein. Tighter security measures have restored the public’s confidence in the integrity of U.S. and world aviation security systems. While any terrorist incident aimed at aviation would have an immediate and significant impact on the demand for aviation services, including, but not limited to, services at O’Hare, in preparing its report the Airport Consultant has assumed, as the FAA does in preparing its nationwide projections, that terrorist incidents will not adversely effect either domestic or world aviation operations during the projection period. See “REPORT OF THE AIRPORT CONSULTANT – Assumptions.”

77

Mitigating Factors. The Airport Consultant is of the opinion that the strong and diverse economic base of the Chicago Region, as well as the absolute size of its population base, would insulate O’Hare from a portion of the impact of the above described economic challenges or threat of terrorism occurring during the projection period. In addition, the existence of hubbing operations at O’Hare would provide a viable source of additional passengers that airports primarily dependent on O&D passengers would not be able to access. The Airport Consultant is also of the opinion that the balanced mix of O&D and connecting passengers, both on a percentage basis and in absolute size, should provide continuous demand for air travel at O’Hare. The large number of airlines serving O’Hare would also mitigate the impact of losing service from those not surviving another challenge to the aviation business model.

Factors Affecting O’Hare

FAA Caps on Operations at O’Hare. Effective November 1, 2004, the FAA and the domestic airlines serving O’Hare agreed to voluntarily limit scheduled O’Hare arrivals to 88 per hour between 7:00 a.m. and 7:59 p.m. (and to 50 in any half hour) and to 98 scheduled arrivals between 8:00 p.m. and 8:59 p.m. United, American, and their regional/commuter partners, who collectively accounted for 84.9 percent of total enplaned passengers at O’Hare in 2004, agreed to the largest reductions. United agreed to reduce its service by 20 arrivals per hour and American agreed to reduce its service by 17 arrivals per hour between 7:00 a.m. and 8:00 p.m. United and United Express combined still operate 588 daily arrivals and American and American Eagle still operate 492 daily arrivals during this time period. The voluntary agreement was intended to reduce delays at O’Hare by 20 percent, and preliminary results following this voluntary agreement would appear to confirm this expectation. The U.S. Transportation Secretary reported on March 22, 2005 that since November 2004, O’Hare’s on-time arrival performance had improved by 17 percent and overall delay minutes had been cut by 22 percent compared to the prior year. This agreement, originally set to expire on April 30, 2005, has been extended through an interim FAA order until April 1, 2006. On March 25, 2005, the FAA issued a notice of proposed rulemaking (“NPRM”) in the Federal Register to implement a more formal flight reduction rule until April 6, 2008. Other major alternatives the FAA considered to manage congestion and delays at O’Hare included: (i) letting the voluntary agreement expire and return to the free and open market with no flight caps; (ii) extending the voluntary agreement; and (iii) using market-based mechanisms such as an auction or congestion pricing. The public comment period on the NPRM closed on May 24, 2005 with 11 respondents, including the City, providing comments on the NPRM. A decision on this issue by the FAA is forthcoming. In making its projections, the Airport Consultant has assumed that the operating limitations will be in place at O’Hare through April 2008 to coincide with the opening of Future Runway 9L-27R. See – “REPORT OF THE AIRPORT CONSULTANT.”

Impact of Regional Jets on O’Hare. The introduction of the regional jet into the dynamics of the demand for air transportation has expanded the role of the regional/commuter air transportation industry. The regional jet’s range and speed has created new opportunities, allowing regional/commuter carriers to serve longer-haul markets and to by-pass congested hub airports by providing point-to-point service. As a result, there has been a substantial shift in both the type and size of aircraft operated by the regional/commuter carriers away from piston and turboprop aircraft. According to the FAA, 25% of the regional/commuter fleet was composed of regional jet aircraft in 2000, but by 2004, this had increased to over 50%, and is expected to grow to approximately 75% by 2016. This trend has also occurred at O’Hare during this same period. In 2000, scheduled domestic departures by regional/commuter carriers at O’Hare accounted for 27.1% of scheduled domestic departures and 69.2% of that amount was accounted for by regional jets. In 2004, scheduled domestic departures by regional/commuter carriers had increased to 43.2% of scheduled domestic departures at O’Hare and were conducted entirely by regional jets.

Proposed South Suburban Airport. The FAA’s final EIS for the OMP, issued in July 2005, studied a scenario for the potential use of other regional airports that would be reasonable in relation to (i)

78

data on airport shares in multiple airport systems, (ii) the availability of capacity at airports in the surrounding area, and (iii) the likelihood of airlines initiating service at available airports. Based on these analyses, the final EIS concluded that if the proposed South Suburban Airport opened, a reasonable scenario would be one in which approximately 2 million originating passengers that would otherwise use O’Hare would be accommodated at one or more of the secondary airports, including a potential South Suburban Airport. The final EIS further concluded that this level of passenger traffic translated into an insignificant reduction in total aircraft operations at O’Hare. See “FEDERAL LEGISLATION, STATE ACTIONS, AND PROPOSED SOUTH SUBURBAN AIRPORT – Proposed South Suburban Airport.”

Additional Investment Considerations

Uncertainties in Funding the Capital Development Programs. The amounts presented in this Official Statement for the funding of OMP-Phase 1, as well as the CIP, are preliminary and based on numerous assumptions which are subject to change. Changes in various assumptions could cause an increase in the amount of additional Airport Obligations which are projected to be required to complete the funding of any of the elements of the Capital Development Programs described herein, including, but not limited to, the OMP-Phase 1. The estimated costs of, and the projected schedule for, the projects included in the Capital Development Programs are subject to a number of uncertainties including, but not limited to: estimating errors; design and engineering errors; changes to the scope of these projects; delays in contract awards; material and/or labor shortages; litigation; unforeseen site conditions; adverse weather conditions; contractor defaults; labor disputes; unanticipated levels of inflation; and environmental issues. There can be no assurance that the cost of construction of the projects included in the Capital Development Programs, including, but not limited to, OMP-Phase 1, will not exceed the currently projected amounts or that the completion will not be delayed beyond the currently projected completion dates. Any schedule delays or cost increases could result in the need to issue additional Airport Obligations, obtain additional MII funding approvals, which may or may not be granted, and may result in increased costs per enplaned passenger to the airlines serving O’Hare.

National Airspace Redesign. Among the FAA’s major concerns is the impact that increased delays at busy airports such as O’Hare have on the efficiency of the national airspace system (the “NAS”). The NAS consists of individual airports that form interconnected and interdependent components of a network, in which delays at one airport can significantly affect operations at other airports. Of particular importance are large hub airports, which are critical elements of the NAS and must be able to process significant numbers of operations to maintain system efficiency. Since 2002, when the FAA allocation procedures for slots at O’Hare were ended, recurring delays and congestion have caused the FAA to intervene with an array of administrative actions to mitigate congestion at O’Hare and prevent disruptions from flowing throughout the NAS. The FAA recognizes that voluntary agreements do not represent the best long term solution to the delays effecting the NAS, and for that reason is undertaking a National Airspace Redesign (“NAR”).

The NAR is a multi-year FAA initiative to review, redesign, and restructure the nation’s airspace to meet the rapidly changing and increasing operational demands on the NAS. Among the elements being considered as part of the NAR are improvements in technology, aircraft equipment, infrastructure and procedures. The NAR is intended to respond to increasing inefficiencies and delays in the NAS. While it is a national effort, most NAR resources are being applied to geographic areas where the need is greatest such as Boston, New York (LaGuardia, Kennedy and Newark Airports), Philadelphia, Atlanta, Chicago, San Francisco, and Los Angeles. While benefits of the NAR are expected to include increased en-route airspace access, increased throughput at major airports, and reduced airspace complexity, airfield constraints at individual airports, such as O’Hare, are frequently more limiting than the airspace serving those same airports.

79

In evaluating the FAA’s process for reviewing and approving the OMP, the report of the U.S. Department of Transportation Office of the Inspector General (the “OIG Report”) concluded that to obtain the reductions in delays and increases in capacity at O’Hare that are projected to arise from the completion of OMP-Phase 1, the FAA must complete its NAR in coordination with the completion of OMP-Phase 1. While the OIG Report acknowledged that the FAA has completed the majority of planning for the NAR, and has identified the equipment and revenues needed to support the NAR, the OIG Report questioned whether the NAR could be implemented on the schedule proposed for the OMP. According to the OIG Report, a failure to implement the NAR in coordination with OMP-Phase 1 would result in O’Hare not receiving the long-term benefits of reduced delays and increased capacity. In such event the OIG Report concludes administrative controls of flight levels at O’Hare may have to be continued, which could be expected to have a negative impact on O’Hare’s operations. While the City fully supports the NAR, the City has no control over the timing or implementation of the NAR. The complete OIG Report is available at http://www.oig.dot.gov.

Limited Liability; Subordination. THE VARIABLE RATE SERIES 2005 BONDS ARE LIMITED OBLIGATIONS OF THE CITY AND DO NOT CONSTITUTE AN INDEBTEDNESS OR A LOAN OF CREDIT OF THE CITY WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY LIMITATION, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF ILLINOIS, THE CITY OR ANY OTHER POLITICAL SUBDIVISION OF THE STATE OF ILLINOIS IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OR PURCHASE PRICE OF OR INTEREST ON THE VARIABLE RATE SERIES 2005 BONDS. THE VARIABLE RATE SERIES 2005 BONDS ARE NOT PAYABLE IN ANY MANNER FROM REVENUES RAISED BY TAXATION. NO PROPERTY OF THE CITY (INCLUDING PROPERTY LOCATED AT O’HARE) IS PLEDGED AS SECURITY FOR THE VARIABLE RATE SERIES 2005 BONDS.

As described under the heading “SECURITY FOR THE VARIABLE RATE SERIES 2005 BONDS,” the claim of the holders of the Third Lien Obligations, including holders of the Variable Rate Series 2005 Bonds, to the net Revenues of O’Hare will be junior and subordinate to the claim of the holders of the First Lien Bonds and the holders of the Second Lien Obligations whether such obligations are currently outstanding or are issued in the future. The Variable Rate Series 2005 Bonds are secured on a parity basis with the Existing Third Lien Bonds, the Fixed Rate Series 2005 Bonds, and all other Third Lien Obligations, other than with respect to the debt service reserve funds therefor. Subject to certain conditions set forth in the Third Lien Indenture, the City may in the future issue additional Third Lien Bonds or incur other Third Lien Obligations that will be secured on a parity basis with the Fixed Rate Series 2005 Bonds, the Variable Rate Series 2005 Bonds, and the Existing Third Lien Bonds. See “O’HARE FINANCIAL INFORMATION – Indebtedness – Issuance of Additional Airport Obligations” and “CAPITAL DEVELOPMENT PROGRAMS.”

Litigation Risk Factors

General. As with many major public projects of similar scope and complexity, some aspects of the OMP, particularly those relating to the acquisition of additional property for the expansion of O’Hare and the alteration of flight patterns, have generated opposition and litigation since the announcement of the OMP. The expansion of O’Hare as proposed in the OMP requires the acquisition of certain property adjacent to O’Hare, which will necessitate the relocation of residents, businesses, and a cemetery. It is anticipated that the City will acquire some of this property voluntarily and some through the exercise of eminent domain condemnation powers.

Previous Claims. Certain parties opposed to the OMP have vigorously contested the implementation of the OMP and have filed numerous lawsuits over a period of several years challenging

80

various aspects of the OMP and the City’s activities relating to land acquisition and other aspects of the OMP. These include, but are not limited to, lawsuits seeking a preliminary injunction prohibiting the City from acquiring land in certain municipalities for expansion of O’Hare; contending that the City is prohibited from acquiring forest preserve land through eminent domain; contending that the City’s proposed acquisition of cemetery property violates laws protecting the environment, freedom of religion and historic or archaeological sites; and contending that certain FAA and City actions, and the proposed funding of the OMP, are improper. Other litigants have sought to impose fees upon the City when it acquires property in an adjoining municipality, and have sought injunctions to limit noise generated by O’Hare. Except as described under the heading “LITIGATION,” all of these lawsuits have been dismissed due to the enactment of Illinois state legislation confirming the City’s authority to implement the OMP, and on procedural and other grounds.

Potential Challenges and Risks Relating to the LOI and AIP Funding. New claims may be asserted by parties challenging the FAA’s issuance of the LOI and the AIP discretionary grant funding to be awarded to the City for use in connection with the OMP during the period 2006 through 2020. Notwithstanding the issuance of the LOI, AIP discretionary grants are subject to annual appropriation over the term of the LOI, and thus may be subject to challenge each year during the fifteen-year funding period. In addition, for a period of 60 days after delivery, the issuance of the LOI may also be subject to challenge in the courts. If the LOI is stayed, enjoined or otherwise not available to the City for use in connection with the OMP, or if any AIP grant is unavailable for any reason, the City could make use of other sources of funding that are available to it, including, but not limited to, other PFC revenues, to fund OMP-Phase 1. Accordingly, the City does not anticipate that a lawsuit challenging the LOI or AIP discretionary grants would prevent the City from proceeding with OMP-Phase 1; however, such a collateral attack could delay or hinder implementation of the OMP. In addition, if the City is required to use alternative sources of funding for OMP-Phase 1, any funds derived from such sources would no longer be available to pay for other capital development projects at O’Hare, including, but not limited to, OMP-Phase 2, the Five-Year CIP, or other capital improvements.

The City is also currently involved in litigation relating to its use of certain moneys from O’Hare to fund costs related to the deactivation of Meigs Field. An adverse determination could result in the City being ineligible to receive payments under FAA grants until the matter is resolved. See “LITIGATION – In the Matter of Compliance with Federal Obligations by the City of Chicago, Illinois.”

Potential Challenges and Risks Relating to the Section 404 Permit. As previously discussed, implementation of the OMP is dependent on the City obtaining a permit from the USACE under Section 404 of the Clean Water Act, which Section 404 Permit was received by the City on December 19, 2005. See “CAPITAL DEVELOPMENT PROGRAMS – OMP Approvals – Clean Water Act Permit Process and Status.” Although the Section 404 Permit has been issued, new claims may be asserted challenging the issuance by the USACE of the Section 404 Permit allowing the infill and mitigation of wetlands in connection with the OMP. If the Section 404 Permit were stayed or enjoined, construction of OMP-Phase 1 could be materially delayed or prevented from being implemented as presently envisioned.

Inability to Predict Nature of Litigation Challenges. As the City continues with the implementation of the OMP, it is expected that those opposed to the expansion of O’Hare will in all likelihood file additional litigation to contest aspects of the funding or implementation of the OMP, or challenging other actions taken or proposed by the FAA, the City, or other parties. The City cannot predict the claims or legal theories that may be raised by potential litigants, or whether any such actions would result in the delay of, or necessitate modifications to, the OMP. Although the City does not currently expect that those opposed to the City’s implementation of the OMP will prevail, were they to prevail, the OMP could be delayed or the City could be required to modify the OMP. Either outcome could be expected to reduce certain of the benefits that the City expects to obtain from the OMP, including, but not limited to, reducing the projected increase in airfield capacity. Reduced capacity could

81

be expected to result in lower aggregate revenue and/or higher cost per enplaned passenger for Airline Parties, which in turn could reduce the Revenue generated at O’Hare for repayment of Airport Obligations, including, but not limited to, the Series 2005 Bonds. The assumptions contained in the Report of the Airport Consultant do not take into account any such possible impact on Revenues or cost per enplaned passenger arising from any litigation involving O’Hare or the OMP.

LITIGATION

Except for those matters described below, there is no litigation pending or threatened against the City relating to the City’s operation of O’Hare, the issuance, sale, or delivery of the Series 2005 Bonds, the validity or enforceability thereof, or the implementation, construction or operation of the OMP, other than various legal proceedings (pending or threatened) which may have arisen or may arise out of the ordinary course of business of O’Hare. The City expects that the final resolution of such legal proceedings arising in the ordinary course of business will not have a material adverse effect on the financial position or the results of operation of O’Hare.

Village of Bensenville, Village of Elk Grove, St. John’s United Church of Christ, Helen Runge, Shirley Steele, and Roxanne Mitchell v. Federal Aviation Administration and Marion C. Blakey, Administrator, Case No. 05-1383, United States Court of Appeals for the District of Columbia Circuit. This lawsuit, which is currently pending against the FAA, challenges the FAA’s Record of Decision (“ROD”) approving the OMP, claiming violations of the federal Religious Freedom Restoration Act, the National Environmental Policy Act, the Free Exercise Clause of the First Amendment, the Due Process Clause and the Administrative Procedure Act, among others. The Court of Appeals has lifted an earlier administrative stay of the ROD and denied the petitioners’ request for an emergency stay, but has not yet ruled on the merits of the case. The City has intervened in the case in support of the FAA position authorizing the OMP to proceed. The City believes that the FAA has acted properly, but is unable to predict the probable outcome of this case.

Village of Bensenville, Village of Elk Grove, St. John’s United Church of Christ, Helen Runge, Shirley Steele, and Roxanne Mitchell v. Federal Aviation Administration and Marion C. Blakey, Administrator, Case No. 05-1456, United States Court of Appeals for the District of Columbia Circuit. A petition for review and a motion for a stay and injunctive relief pending appeal were filed on December 14, 2005, seeking (i) review of the LOI and (ii) a stay and injunctive relief pending appeal to stay the LOI and to enjoin the City from acquiring and destroying property in Bensenville and Elk Grove Village pending full review of the petition. The City believes that the FAA has acted properly in issuing the LOI, but is unable to predict the probable outcome of this appeal. For a discussion of potential challenges and risks relating to the LOI and the implementation of the OMP, see “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY, AND O’HARE – Litigation Risk Factors.”

Village of Bensenville, Village of Elk Grove, and City of Park Ridge v. Federal Aviation Administration, No. 03-1068, U.S. Circuit Court of Appeals for the District of Columbia. On March 10, 2003, the Village of Bensenville, the Village of Elk Grove and the City of Park Ridge filed a petition with the U.S. Circuit Court of Appeals for the District of Columbia challenging the FAA’s approval of the City’s application to impose and use PFC Revenues to fund a runway formulation project in connection with the OMP. This petition was consolidated with a similar petition filed by St. John’s United Church of Christ. On April 25, 2003, the City filed a motion to dismiss plaintiffs’ petitions under the ripeness doctrine. While the St. John’s portion of the case was dismissed, the City’s motion to dismiss the Village of Bensenville, et al. portion of the case was not granted by the Court. On July 27, 2004, the Appellate Court granted the Bensenville Petitioners’ petition for review and remanded the matter to the FAA, finding that the FAA’s record in the matter was not sufficient to justify the amount of PFCs it had

82

approved for the Environmental Impact Study. The City subsequently proceeded with the study utilizing an alternative source of funding.

St. John’s United Church of Christ, et al. v. City of Chicago, et al., No. 03-C-3726, U.S. District Court for the Northern District of Illinois. On May 30, 2003, St. John’s United Church of Christ, Rest Haven Cemetery Association, some individuals with family members buried in these cemeteries, the Village of Elk Grove and the Village of Bensenville and one of its residents filed a 21-count complaint for preliminary and permanent injunction against the City, the Mayor, the FAA and its Administrator, and the State of Illinois and its Governor. The complaint alleged violations of the National Environmental Policy Act, the National Historic Preservation Act, Section 4(f) of the Department of Transportation Act, the Free Exercise Clause of the First Amendment, the Religious Land Use and Institutionalized Persons Act, the federal Religious Freedom Restoration Act, and a due process/equal protection claim. The relief requested sought to prevent the acquisition of any cemetery land for the OMP at any time, and sought to prevent the acquisition of non-cemetery land prior to the issuance of the FAA’s Record of Decision approving the OMP. The City filed motions to dismiss the case on October 15, 2003; the plaintiffs’ responses were filed on November 5, 2003.

The FAA issued its ROD approving the OMP on September 29, 2005. Subsequently, on October 26, 2005, the plaintiffs in this case sought leave to file a second amended complaint and obtain a temporary restraining order (“TRO”) and preliminary injunction prohibiting further acquisition of property for the OMP in Bensenville, Elk Grove Village and St. Johannes Cemetery after the issuance of the ROD. The proposed second amended complaint and TRO and preliminary injunction petition alleged violations of the National Environmental Policy Act, the Free Exercise Clause of the First Amendment, the Religious Land Use and Institutionalized Persons Act, the Administrative Procedure Act, the federal Religious Freedom Restoration Act, due process and equal protection, and the federal Freedom of Information Act. On November 3, 2005 the judge issued a temporary restraining order prohibiting the City from proceeding with land acquisitions in Bensenville, Elk Grove Village and St. Johannes Cemetery while he considered the briefing on the issue. On November 16, 2005, the judge denied leave to the plaintiffs to file their proposed second amended complaint (except as to a federal Freedom of Information Act count against the FAA), dismissed the pending First Amended Complaint against the City and the FAA, vacated the TRO and denied the plaintiffs’ motion for a preliminary injunction as moot. The judge also denied the plaintiffs’ oral motion made at the hearing to enjoin the City pending appeal.

On November 23, 2005, St. John’s United Church of Christ filed a motion with the U.S. Court of Appeals for the Seventh Circuit requesting summary reversal of the District Court’s decision and the issuance of an injunction prohibiting cemetery acquisition pending expedited consideration of their appeal. On November 28, 2005, the City filed its response in opposition to St. John’s motion for summary reversal and injunction, although not objecting to expedited consideration of the appeal. On December 2, 2005, the Court of Appeals issued an injunction to prevent the City from receiving legal title to the land on which St. Johannes Cemetery is located; denied the appellants’ request for summary reversal; and granted the appellants’ request for an expedited appeal and established a briefing schedule requiring: the appellants’ brief and required short appendix to be filed on or before December 14, 2005, the appellees’ brief to be filed on December 27, 2005, and the appellants’ reply brief, if any, to be filed on or before January 3, 2006. Oral argument of the appeal has been set for January 10, 2006. St. John’s United Church of Christ is seeking the summary reversal and injunction separately from any appeal that may be pursued by the Village of Bensenville, Elk Grove Village, and Rest Haven Cemetery Association.

In the Matter of Compliance with Federal Obligations by the City of Chicago, Illinois, Docket No. 16-04-09. On October 1, 2004, the FAA issued a Notice of Investigation (“NOI”) initiating an investigation, pursuant to 14 C.F.R. Part 16, to determine whether the City improperly diverted airport revenues by applying approximately $1.5 million from the O’Hare Airport Development Fund (“ADF”)

83

to costs related to the deactivation of Meigs Field as an airport. These include the cost of removal of abandoned airport improvements (principally airport buildings and the runway) and the remediation of airport-related environmental contamination. The FAA has alleged that these expenditures violate the City’s federal grant obligation under Grant Assurance 25, “Airport Revenues.” In its response, the City informed the FAA that approximately $2.8 million in ADF Funds have been spent on Post Closure Costs and strongly asserted that such expenditures are appropriate uses of airport revenues. If the City is found to have used airport revenues improperly, it could be liable for a penalty of up to three times the amount expended at Meigs Field. In that eventuality, the FAA could also issue a determination that the City has not complied with its federal sponsor obligations in its operations of its airports; the City could be found ineligible to receive payments under existing FAA grants until this matter is resolved. The City submitted its response to the NOI on December 3, 2004, and the matter is now in discovery.

United Air Lines, Inc. v. U.S. Bank Trust National Association, as Trustee, et al., Adversary Proceeding No. 03 A 00640 (In Re: UAL Corporation, et al., Case No. 02 B 48191) U.S. Bankruptcy Court for the Northern District of Illinois. See “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY, AND O’HARE – Financial Condition of Airlines Serving O’Hare – United Special Facility Bonds” for a discussion of this case.

In addition to the cases described above, there are, from time to time, lawsuits that arise out of the various construction contracts entered into in connection with construction projects at O’Hare. The City, however, does not believe that any sums that may be recovered would have a material adverse impact on the financial condition of O’Hare or the collection of Revenues by the City. See “SECURITY FOR THE VARIABLE RATE SERIES 2005 BONDS − Description of Revenues.”

TAX MATTERS

Summary of Co-Bond Counsel Opinion. Kutak Rock LLP and Pugh, Jones, Johnson & Quandt, P.C., Co-Bond Counsel, are of the opinion that under existing law, interest on the Variable Rate Series 2005 Bonds is not includable in the gross income of the owners thereof for federal income tax purposes. If there is continuing compliance with the applicable requirements of the Internal Revenue Code of 1986 (the “Code”), Co-Bond Counsel are of the opinion that interest on the Variable Rate Series 2005 Bonds will continue to be excluded from the gross income of the owners thereof for federal income tax purposes. Interest on the Variable Rate Series 2005 Bonds is not an item of tax preference for purposes of computing individual or corporate alternative minimum taxable income, but must be taken into account as earnings and profits of a corporation when computing, for example, corporate alternative minimum taxable income for purposes of the corporate alternative minimum tax. Interest on the Variable Rate Series 2005 Bonds is not exempt from Illinois income taxes.

Exclusion from Gross Income: Requirements. The Code contains certain requirements that must be satisfied from and after the date of issuance of the Variable Rate Series 2005 Bonds in order to preserve the exclusion from gross income for federal income tax purposes of interest on the Variable Rate Series 2005 Bonds. These requirements relate to the use and investment of the proceeds of the Variable Rate Series 2005 Bonds, the payment of certain amounts to the United States, the security and source of payment of the Variable Rate Series 2005 Bonds and the use of the property financed with the proceeds of the Variable Rate Series 2005 Bonds. The City covenants in the Third Lien Indenture to comply with these requirements. Among these specific requirements are the following:

(a) Investment Restrictions. Except during certain “temporary periods,” proceeds of the Variable Rate Series 2005 Bonds and investment earnings thereon (other than amounts held in a reasonably required reserve or replacement fund, if any, or as part of a “minor portion”) may generally

84

not be invested in investments having a yield that is materially higher than the yield on the Variable Rate Series 2005 Bonds.

(b) Rebate of Permissible Arbitrage Earnings. Earnings from the investment of the “gross proceeds” of the Variable Rate Series 2005 Bonds in excess of the earnings that would have been realized if such investments had been made at a yield equal to the yield on the Variable Rate Series 2005 Bonds are required to be paid to the United States at periodic intervals. For this purpose, the term “gross proceeds” includes the original proceeds of the Variable Rate Series 2005 Bonds, amounts received as a result of investing such proceeds and amounts to be used to pay debt service on the Variable Rate Series 2005 Bonds.

(c) Restrictions on Ownership and Use. The Code includes restrictions on the ownership and use of the facilities financed with the proceeds of the Variable Rate Series 2005 Bonds. Such provisions may restrict future changes in the use of any property financed with the proceeds of the Variable Rate Series 2005 Bonds.

Covenants to Comply. The City covenants in the Third Lien Indenture to comply with the requirements of the Code relating to the exclusion from gross income for federal income tax purposes of interest on the Variable Rate Series 2005 Bonds.

Risk of Non-Compliance. In the event that the City fails to comply with the requirements of the Code, interest on the Variable Rate Series 2005 Bonds may become includable in the gross income of the owners thereof for federal income tax purposes retroactively to the date of issue. In such event, the Third Lien Indenture does not require acceleration of payment of principal of or interest on the Variable Rate Series 2005 Bonds or payment of any additional interest or penalties to the owners of the Variable Rate Series 2005 Bonds.

Federal Income Tax Consequences. Pursuant to Section 103 of the Code, interest on the Variable Rate Series 2005 Bonds is not includable in the gross income of the owners thereof for federal income tax purposes. However, the Code contains a number of other provisions relating to the treatment of interest on the Variable Rate Series 2005 Bonds that may affect the taxation of certain types of owners, depending on their particular tax situations. Some of the potentially applicable federal income tax provisions are described in general terms below. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS CONCERNING THE PARTICULAR FEDERAL INCOME TAX CONSEQUENCES OF THEIR OWNERSHIP OF THE VARIABLE RATE SERIES 2005 BONDS.

(a) Cost of Carry. Owners of the Variable Rate Series 2005 Bonds will generally be denied a deduction for otherwise deductible interest on any debt that is treated for federal income tax purposes as incurred or continued to purchase or carry the Variable Rate Series 2005 Bonds. Financial institutions are denied a deduction for their otherwise allowable interest expense in an amount determined by reference to their adjusted basis in the Variable Rate Series 2005 Bonds.

(b) Corporate Owners. Interest on the Variable Rate Series 2005 Bonds is generally taken into account in computing earnings and profits of a corporation and consequently may be subject to federal income taxes based thereon. Thus, for example, interest on the Variable Rate Series 2005 Bonds is taken into account not only in computing the corporate alternative minimum tax but also the branch profits tax imposed on certain foreign corporations, the passive investment income tax imposed on certain S corporations, and the accumulated earnings tax.

(c) Individual Owners. Receipt of interest on the Variable Rate Series 2005 Bonds may increase the amount of social security and railroad retirement benefits included in the gross income of the recipients thereof for federal income tax purposes.

85

(d) Property or Casualty Insurance Companies. Receipt of interest on the Variable Rate Series 2005 Bonds may reduce otherwise deductible underwriting losses of a property or casualty insurance company.

Change of Law. The opinions of Co-Bond Counsel and the descriptions of the tax law contained in this Official Statement are based on statutes, judicial decisions, regulations, rulings, and other official interpretations of law in existence on the date the Variable Rate Series 2005 Bonds were issued. There can be no assurance that such law or the interpretation thereof will not be changed or that new provisions of law will not be enacted or promulgated at any time while the Variable Rate Series 2005 Bonds are outstanding in a manner that would adversely affect the value or the tax treatment of ownership of the Variable Rate Series 2005 Bonds.

CERTAIN LEGAL MATTERS

Certain legal matters incident to the authorization, issuance and sale by the City of the Variable Rate Series 2005 Bonds are subject to the approving legal opinions of Kutak Rock LLP, Chicago, Illinois, and Pugh, Jones, Johnson & Quandt, P.C., Chicago, Illinois, Co-Bond Counsel. The proposed form of the opinions of Co-Bond Counsel is included as APPENDIX F.

Certain legal matters will be passed upon for the City by its Corporation Counsel; for the Underwriters by their co-counsel, Burke, Warren, MacKay & Serritella, P.C., Chicago, Illinois, and Chico & Nunes LLP, Chicago, Illinois; for the Liquidity Facility Providers by their U.S. counsel, Chapman and Cutler LLP, Chicago, Illinois; for DEPFA BANK plc by its in-house counsel and for Dexia Credit Local by JeantetASSOCIES, New York, New York; and for the Bond Insurer by its General Counsel.

UNDERWRITING

A group of underwriters listed on the cover page and represented by Citigroup Global Markets Inc. (“Citigroup”) has agreed, jointly and severally, to purchase the Variable Rate Series 2005 Bonds subject to certain conditions set forth in the Bond Purchase Agreement with the City. The Bond Purchase Agreement provides that the obligations of the Underwriters to accept delivery of the Variable Rate Series 2005 Bonds are subject to various conditions of the Bond Purchase Agreement, but the Underwriters will be obligated to purchase all the Variable Rate Series 2005 Bonds if any Variable Rate Series 2005 Bonds are purchased. The Underwriters have agreed to purchase the Variable Rate Series 2005 Bonds at an aggregate purchase price of $299,356,417.41, an amount which represents the aggregate principal amount of the Variable Rate Series 2005 Bonds less an underwriting discount of $643,582.59.

The Underwriters reserve the right to join with dealers and other underwriters in offering the Variable Rate Series 2005 Bonds to the public.

The prices and other terms respecting the offering and sale of the Variable Rate Series 2005 Bonds may be changed from time to time by the respective Underwriters after the Variable Rate Series 2005 Bonds are released for sale. The Variable Rate Series 2005 Bonds may be offered and sold at prices other than the initial offering prices, including sales to dealers who may sell such Variable Rate Series 2005 Bonds into investment accounts.

SECONDARY MARKET DISCLOSURE

Rule 15c2-12 (“Rule 15c2-12”) under the Securities Exchange Act of 1934 generally requires that “obligated persons,” such as the City and certain other parties, provide (i) continuing disclosure on an annual basis of financial information and operating data and (ii) notices of certain specified events that

86

could affect the credit underlying the payment obligations of municipal securities. Offerings of municipal securities that are issued in minimum denominations of $100,000 and are subject to purchase by the issuer on the demand of the holder, such as will be the case with respect to the Variable Rate Series 2005 Bonds while bearing interest in the Weekly Mode, are exempt from these requirements. If the Variable Rate Series 2005 Bonds are remarketed in a mode other than the Weekly Mode, the City and any other “obligated persons” may in the future become subject to these continuing disclosure obligations of Rule 15c2-12.

AIRPORT CONSULTANT

Certain of the information relating to O’Hare and the airline industry contained in this Official Statement under the captions “CHICAGO O’HARE INTERNATIONAL AIRPORT,” “OPERATIONS AT O’HARE,” and “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY, AND O’HARE” was prepared on the basis of information presented by the Airport Consultant. In addition, the Airport Consultant prepared the information under the caption “REPORT OF THE AIRPORT CONSULTANT” and prepared the “REPORT OF THE AIRPORT CONSULTANT” contained in APPENDIX E to this Official Statement. The information contained under said caption and in the Report of the Airport Consultant contains projections of future activity at O’Hare and are included herein in reliance on the authority of the Airport Consultant as experts in the aviation industry. These projections were based in part on historical data from sources considered by the Airport Consultant to be reliable, but the accuracy of these data has not been independently verified. Such projections were based on assumptions made by the Airport Consultant concerning future events and circumstances which the Airport Consultant believes are significant to the projections. The achievement of any projection may be affected by fluctuating economic conditions and depends upon the occurrence of other future events which cannot be assured. Therefore, the actual results achieved may vary from the projections, and such variations could be material.

FINANCIAL ADVISOR

The City has engaged Mesirow Financial, Inc. as its financial advisor (the “Financial Advisor”) in connection with the authorization, issuance and sale of the Variable Rate Series 2005 Bonds. Under the terms of its engagement, the Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification of, or to assume responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement.

FINANCIAL STATEMENTS

The financial statements of the City of Chicago Illinois – Chicago O’Hare International Airport as of and for the years ended December 31, 2004 and 2003, included as APPENDIX D to this Official Statement, to the extent indicated in their report, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein.

Deloitte & Touche LLP have not compiled, examined, or performed any procedures with respect to the prospective financial information contained in this Official Statement, nor have Deloitte & Touche LLP expressed any opinion or any other form of assurance on such information or its achievability, and Deloitte & Touche LLP assume no responsibility for, and disclaim association with, the prospective financial information included in this Official Statement.

RATINGS

The Variable Rate Series 2005 Bonds are expected to be rated “Aaa” by Moody’s Investors Service (“Moody’s”), “AAA” by Standard & Poor’s, a division of McGraw-Hill Companies (“S&P”),

87

and “AAA” by Fitch Ratings Inc. (“Fitch”), conditioned upon the issuance of the Bond Insurance Policies by the Bond Insurer. All new issues insured by the Bond Insurer currently receive such ratings by Moody’s, S&P, and Fitch. The ratings will be based on the claims paying ability of the Bond Insurer.

Moody’s, S&P and Fitch are expected to assign short-term ratings of “VMIG1,” “A-1+,” and “F-1+” respectively, to the Variable Rate Series 2005 Bonds with the understanding that upon delivery of the Variable Rate Series 2005 Bonds the Initial Liquidity Facilities will be executed and delivered.

Moody’s, S&P and Fitch have assigned their underlying ratings of “A2,” “A-“ and “A”, respectively, to each series of the Variable Rate Series 2005 Bonds. Certain information was supplied by the City to each of the rating agencies to be considered in evaluating the Variable Rate Series 2005 Bonds.

A rating reflects only the views of the rating agency assigning such rating and an explanation of the significance of such rating may be obtained from such rating agency. The City has furnished to the rating agencies certain information and materials relating to the Variable Rate Series 2005 Bonds and O’Hare, including certain information and materials that have not been included in this Official Statement. Generally, rating agencies base their ratings on such information and materials and investigations, studies and assumptions by the respective rating agency. There is no assurance that any rating will continue for any given period of time, or that any rating will not be revised downward or withdrawn entirely by either such rating agency if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of any such rating may have an adverse effect on the market price of the Variable Rate Series 2005 Bonds.

MISCELLANEOUS

The summaries or descriptions in this Official Statement of provisions in the Third Lien Indenture and all references to other materials not purporting to be quoted in full are only brief outlines of certain provisions and do not constitute complete statements of such documents or provisions. Reference is made to the complete documents relating to such matter for further information, copies of which will be furnished by the City upon written request delivered to the office of the City Comptroller, Room 600, 33 North LaSalle Street, Chicago, Illinois 60602.

The information contained herein regarding the Bond Insurer, the Bond Insurance Policy, the Liquidity Facility Providers and the Liquidity Facilities was provided by the Bond Insurer and the respective Liquidity Facility Providers and has not been verified by the City or the Underwriters.

AUTHORIZATION

The City has authorized the distribution of this Official Statement.

This Official Statement has been duly executed and delivered by the Chief Financial Officer on behalf of the City.

CITY OF CHICAGO

By: /s/ Dana R. Levenson Chief Financial Officer

APPENDIX A

GLOSSARY OF TERMS

A-1

APPENDIX A

GLOSSARY OF TERMS

The following are definitions of certain terms used in this Official Statement. This glossary is provided for the convenience of the reader and does not purport to be comprehensive or definitive. Certain capitalized terms used herein are defined elsewhere in this Official Statement. All references herein to terms defined in the Third Lien Indenture and the Airport Use Agreements are qualified in their entirety by the definitions set forth in the Third Lien Indenture and/or the Airport Use Agreements, as the case may be. Copies of the Third Lien Indenture and the Airport Use Agreements are available for review prior to the issuance and delivery of the Variable Rate Series 2005 Bonds at the offices of the City and thereafter at the offices of the Trustee.

“Affiliate” means, with respect to a Person, any Person (whether for-profit or not-for-profit) which “controls,” is “controlled” by, or is under common “control” with such Person. For purposes of this definition, a Person “controls” another person when the first Person possesses or exercises directly, or indirectly through one or more other affiliates or related entities, the power to direct the management and policies of the other Person, whether through the ownership of voting rights, membership, the power to appoint members, trustees or directors, by contract, or otherwise.

“Aggregate First Lien Debt Service” means, as of any particular date of computation and with respect to a particular Bond Year or other specified 12-month period, an amount of money equal to the aggregate of the amounts of Annual First Lien Debt Service with respect to (a) that Bond Year or other specified 12-month period, and (b) the First Lien Bonds of all series.

“Aggregate Second Lien Debt Service” means, as of any particular date of computation and with respect to a particular Bond Year or other specified 12-month period, an amount of money equal to the aggregate amount required by the provisions of all Second Lien Supplemental Indentures creating series of Second Lien Obligations and all instruments creating Second Lien Section 208 Obligations to be deposited from Second Lien Revenues in all sub-funds, accounts and subaccounts created under the Second Lien Supplemental Indentures in the Bond Year or other specified 12-month period.

“Aggregate Third Lien Debt Service” means, as of any particular date of computation and with respect to a particular Bond Year or other specified 12-month period, an amount of money equal to the aggregate amount required by the provisions of all Supplemental Indentures creating Series of Third Lien Obligations, all instruments creating Third Lien Section 208 Obligations and all Qualified Third Lien Swap Agreements, to be deposited from Third Lien Revenues in all sub-funds, accounts and subaccounts created under the Supplemental Indentures in the Bond Year or other specified 12-month period.

“Airline Party” means, as defined in the Airport Use Agreements, at any time, each person actively engaged in the air transportation business (as described in the Airport Use Agreements) at O’Hare who then has an Airport Use Agreement in effect with the City.

“Airport” or “O’Hare” means Chicago O’Hare International Airport, together with any additions thereto, or improvements or enlargements of it, later made, but any land, rights-of-way, or improvements which are now or later owned by or are part of the transportation system operated by the Chicago Transit Authority, or any successor thereto, wherever located within the boundaries of the Airport, are not deemed to be part of the Airport.

A-2

“Airport Development Fund Deposit Requirement” means for any Fiscal Year any amount required to be deposited in the Airport Development Fund from any source in such Fiscal Year under the Airport Use Agreements.

“Airport Fees and Charges” means, for any Fiscal Year, all rentals, charges and fees payable by all Airline Parties for such Fiscal Year, after adjustment pursuant to the Final Audit for such Fiscal Year, (a) pursuant to an Airport Use Agreement, and, if appropriate, (b) pursuant to a Special Facility Financing Arrangement to the extent rentals, charges and fees paid pursuant thereto are for the purpose of paying Special Facility Revenue Bond and Other Debt Service.

“Airport Obligations” means any bonds, notes or other evidences of indebtedness of the City, which bonds, notes or other evidences of indebtedness are payable from Revenues.

“Airport Project” means any capital improvement at or related to the Airport or the acquisition of land or any interest in land beyond the then-current boundaries of the Airport, or any cost or expense paid or incurred in connection with or related to the Airport whether or not of a capital nature and whether or not related to facilities at the Airport, including, but not limited to, amounts needed to satisfy any judgment and the cost of any noise mitigation programs.

“Alternate Liquidity Facility” means a Liquidity Facility issued to replace a Liquidity Facility to purchase Variable Rate Series 2005 Bonds other than ARS tendered for purchase as provided in the Third Lien Indenture.

“Annual First Lien Debt Service” means, as of any particular date of computation and with respect to a particular Bond Year or other specified 12-month period, and First Lien Bonds of a particular series, an amount of money equal to the sum of (a) all interest payable during that Bond Year or other specified 12-month period on all First Lien Bonds of the series Outstanding (as defined in the General Airport Revenue Bond Ordinance) on said date of computation, and (b) all Principal Installments payable during that Bond Year or other specified 12-month period with respect to all First Lien Bonds of the series Outstanding (as defined in the General Airport Revenue Bond Ordinance) on the date of computation, all calculated on the assumption that First Lien Bonds will, after said date of computation, cease to be Outstanding (as defined in the General Airport Revenue Bond Ordinance) by reason, but only by reason, of the payment when due and application in accordance with the General Airport Revenue Bond Ordinance of Principal Installments payable at or after said date of computation.

“Annual Second Lien Debt Service” means, as of any particular date of computation and with respect to a particular Bond Year or other specified 12-month period, and Second Lien Obligations of a particular series or consisting of a particular Second Lien Section 208 Obligation, an amount of money equal to the sum of (a) all interest payable during that Bond Year or other specified 12-month period on all Second Lien Obligations of the series or Second Lien Section 208 Obligation Outstanding (as defined in the Second Lien Indenture) on the date of computation, and (b) all Principal Installments payable during that Bond Year or other specified 12-month period with respect to all Second Lien Obligations of the series or Second Lien Section 208 Obligation Outstanding (as defined in the Second Lien Indenture) on the date of computation, all calculated on the assumption that Second Lien Obligations will, after the date of computation, cease to be Outstanding (as defined in the Second Lien Indenture) by reason, but only by reason, of the payment when due and application in accordance with the Third Lien Indenture and the Second Lien Supplemental Indenture creating that series or the instrument creating that Second Lien Section 208 Obligation of Principal Installments payable at or after the date of computation.

“Annual Third Lien Debt Service” means, as of any particular date of computation and with respect to a particular Bond Year or other specified 12-month period, and Third Lien Bonds of a

A-3

particular series or consisting of a particular Third Lien Section 208 Obligation or Qualified Third Lien Swap Agreement, an amount of money equal to the sum of (a) all interest payable during that Bond Year or other specified 12-month period on all Third Lien Obligations of the series or Third Lien Section 208 Obligation Outstanding on the date of computation, (b) all Principal Installments payable during that Bond Year or other specified 12-month period with respect to all Third Lien Obligations of the series or Third Lien Section 208 Obligation Outstanding on the date of computation, and (c) amounts due and payable during that Bond Year or other specified 12-month period on all Qualified Third Lien Swap Agreements. Amounts determined pursuant to clause (a) and (b) above must be calculated on the assumption that Third Lien Obligations will, after the date of computation, cease to be Outstanding by reason, but only by reason, of the payment when due and application in accordance with the Third Lien Indenture and the Supplemental Indenture creating that Series or the instrument creating that Third Lien Section 208 Obligation of Principal Installments payable at or after the date of computation.

“ARS” means, on any date, the Variable Rate Series 2005 Bonds of any series when bearing interest as auction rate securities as provided in the Third Lien Indenture and the auction procedures applicable thereto.

“ARS Interest Rate Period” means each period during which the Variable Rate Series 2005 Bonds of any series are ARS.

“ARS Maximum Rate” means 15% per annum, provided in no event shall the ARS Maximum Rate be more than the Maximum Lawful Rate.

“Auction Rate” means, with respect to the interest rate on ARS, the rate of interest per annum that results from implementation of the applicable auction procedures, provided, however, that the Auction Rate shall not exceed the ARS Maximum Rate. While the applicable auction procedures are suspended, the Auction Rate will be determined as otherwise described in the Third Lien Indenture.

“Authorized Denomination” mans (a) with respect to Variable Rate Series 2005 Bonds which are subject to a Long-Term Interest Rate Period, $5,000 or any integral multiple thereof, (b) with respect to Variable Rate Series 2005 Bonds which are ARS, $25,000 or any integral multiple thereof while the ARS are in any Auction Period, and (c) with respect to Variable Rate Series 2005 Bonds which are not described in the preceding clause (a) or clause (b), $100,000 or any integral multiple of $5,000 in excess of $100,000.

“Authorized Officer” means (a) the Mayor, the Chief Financial Officer, the City Treasurer, the Commissioner, the City Comptroller or any other official of the City so designated by a Certificate signed by the Mayor and filed with the Trustee for so long as that designation is in effect, and (b) the City Clerk with respect to the certification of any ordinance or resolution of the City Council or any other document filed in his or her office.

“Balloon Maturities” means, with respect to any Series of Third Lien Obligations, 50 percent or more of the principal of which matures on the same date or within a Fiscal Year, that portion of such Series which matures on such date or within such Fiscal Year. For purposes of this definition, the principal amount maturing on any date shall be reduced by the amount of such Third Lien Obligations scheduled to be amortized by prepayment or redemption prior to their stated maturity date. Commercial paper, bond anticipation notes or variable rate demand obligations shall not be Balloon Maturities.

“Bank Rate” means the rate of interest applicable to Bank Bonds as set forth in the related Liquidity Facility.

A-4

“Bank Bonds” means Variable Rate Series 2005 Bonds of a series purchased by the related Liquidity Facility Provider or its assignee pursuant to the related Liquidity Facility.

“Beneficial Owner” means any Person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Variable Rate Series 2005 Bond (including any Person holding a Variable Rate Series 2005 Bond through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Variable Rate Series 2005 Bond for federal income tax purposes.

“BMA Index” means on any date, a rate determined on the basis of the seven-day high grade market index of tax-exempt variable rate demand obligations, as produced by Municipal Market Data and published or made available by the Bond Market Association (“BMA”) or any person acting in cooperation with or under the sponsorship of BMA and acceptable to the Remarketing Agent and effective from such date.

“Bond Counsel” means a firm of attorneys having expertise in the field of law relating to municipal, state and public agency financing, selected by the City and satisfactory to the Trustee.

“Bond Insurance Policies” means the separate bond insurance policies issued by the Bond Insurer for each series of the Variable Rate Series 2005 Bonds.

“Bond Interest Term Rate” means, with respect to a Variable Rate Series 2005 Bond, a non-variable interest rate on such Variable Rate Series 2005 Bond established periodically in accordance with the Third Lien Indenture.

“Bond Purchase Account” means the account of that name established with a Tender Agent pursuant to the Third Lien Indenture.

“Bond Year” means a 12-month period commencing on January 2 of each calendar year and ending on January 1 of the next succeeding calendar year.

“Business Day” means any day other than a Saturday, Sunday or a day on which banks located (a) in the city in which the principal corporate trust office of the Trustee is located, (b) in the city in which the office of the Bond Insurer or the Bond Insurer’s custodian at which claims under the Bond Insurance Policy are to be paid is located, (c) in the city in which the office of the Liquidity Facility Providers at which drawings under the Liquidity Facilities are to be honored is located, and (d) in the city in which the principal office of the Remarketing Agent is located, are required or authorized to remain closed or on which The New York Stock Exchange is closed.

“Capitalized Interest” means any amount included in the proceeds of any series of Airport Obligations for the payment of interest on any Airport Obligations.

“Capitalized Interest Account” means the account of that name established in the applicable Dedicated Sub-Fund.

“Certificate” means a written instrument, certificate, statement, request or requisition of any person. In the case of the City, each Certificate shall be executed by an Authorized Officer. Any Certificate and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined must be read and construed so as to form a single instrument. Any Certificate may be based, insofar as it relates to legal, accounting or engineering matters, upon the opinion or representation of counsel,

A-5

accountants or engineers, respectively, unless the officer signing that Certificate knows, or in the exercise of reasonable care should have known, that the opinion or representation with respect to the matters upon which that Certificate may be based, as aforesaid, is erroneous. The same person, or the same counsel or accountant, as the case may be, need not certify to all of the matters required to be certified under any provision of the Master Indenture or any Supplemental Indenture, but different persons, counsel or accountants may certify to different facts, respectively. Every Certificate or opinion of counsel, accountants, engineers or other persons provided for in the Master Indenture or any Supplemental Indenture must include:

(a) a statement that the person making that Certificate or opinion or representation has read the pertinent provision of the Master Indenture or the Supplemental Indenture to which that statement, Certificate, opinion or representation relates;

(b) a brief statement as to nature and scope of the examination or investigation upon which the statements, opinions or representations are based;

(c) a statement that, in the opinion of that person, that person has made such examination or investigation as is necessary to enable that person to express an informed opinion with respect to the subject matter referred to in the instrument to which that person’s signature is affixed; and

(d) with respect to any statement relating to compliance with any provision of the Master Indenture or any Supplemental Indenture, a statement whether or not, in the opinion of that person, that provision has been complied with.

“Chief Financial Officer” means the Chief Financial Officer appointed by the Mayor, or the City Comptroller of the City at any time a vacancy exists in the office of the Chief Financial Officer.

“City” means the City of Chicago, a municipal corporation and home rule unit of local government organized and existing under the laws of the State of Illinois.

“City Bonds” means the Variable Rate Series 2005 Bonds held by the Tender Agent for and on behalf of the City or any nominee for (or any Person who owns such Variable Rate Series 2005 Bonds for the sole benefit of) the City pursuant to the Third Lien Indenture and the Tender Agent Agreement.

“City Council” means the City Council of the City, or any succeeding governing or legislative body of the City.

“City Purchase Subaccount” means the subaccount of that name established within the Bond Purchase Account.

“Code” means the Internal Revenue Code of 1986, as from time to time supplemented and amended. References to the Code and to sections of the Code shall include relevant final, temporary or proposed Regulations as in effect from time to time and, with reference to any Series of Third Lien Obligations, as applicable to obligations issued on the date of issuance of that Series.

“Commissioner” means the Commissioner of Aviation of the City or any designee of the Commissioner, or any successor or successors to the duties of any such official.

“Common Debt Service Reserve Account” means the account of that name established by the Second Supplemental Indenture.

A-6

“Common Reserve Bonds” means any series of Third Lien Obligations issued under the Third Lien Indenture entitled to the benefit of the Common Debt Service Reserve Account pursuant to the Second Supplemental Indenture.

“Completion Bonds” means any Third Lien Obligations issued in accordance with the Third Lien Indenture for the purpose of defraying additional costs of one or more Airport Projects financed by Airport Obligations.

“Concession Revenues” means, for any Fiscal Year, rentals, charges and fees of any kind or nature payable to the City during such Fiscal Year from tenants, licensees, permittees, or other operators at O’Hare, for the right to use premises at O’Hare to sell or lease merchandise, services or other intangibles, including, but not limited to, restaurants, bars, car rental agencies, news stands, gift shops, specialty shops, advertising displays, insurance sales facilities, public telephones, facilities for the furnishing of ground transportation services, hotels and parking areas; provided, however, that Concession Revenues shall not include (a) any such rentals, charges or fees derived from the Land Support Area or the International Terminal Area, (b) Airport Fees and Charges, (c) terminal rentals or landing fees of non-Airline Parties, (d) fees and charges under fueling facility agreements, or (e) the proceeds of any tax levied at O’Hare.

“Conversion” means a conversion of a series of Variable Rate Series 2005 Bonds from one Interest Rate Period to another Interest Rate Period (including the establishment of a new interest period within the Long-Term Interest Rate Period) as provided in the Third Lien Indenture. It is not a requirement that both series of Variable Rate Series 2005 Bonds be in the same interest mode at the same time.

“Conversion Date” means the effective date of a Conversion of a series of Variable Rate Series 2005 Bonds.

“Cost-Revenue Centers” (sometimes abbreviated as “CRCs”) means those areas of O’Hare grouped together for the purposes of accounting for Revenues, O&M Expenses and Debt Service, and for calculating Airport Fees and Charges. The CRCs named in the Airport Use Agreements, taken together, comprise all of O’Hare, and are the Terminal Area, the Airfield Area, the International Terminal Area, the Terminal Support Area, the Fueling System and the Land Support Area.

“Costs of Issuance” means any item of expense payable or reimbursable, directly or indirectly, by the City and related to the authorization, offering, sale, issuance and delivery of Third Lien Obligations, including, but not limited to, travel and other expenses of any officer or employee of the City in connection with the authorization, offering, sale, issuance and delivery of the Third Lien Obligations, printing costs, costs of preparation and reproduction of documents, filing and recording fees, initial fees and charges of any Fiduciary, legal fees and disbursements, fees and disbursements of any Independent Airport Consultant and any Independent Accountant, fees and disbursements of other consultants and professionals, costs of credit ratings, fees and charges for preparation, execution, transportation and safekeeping of Third Lien Obligations, application fees and premiums on municipal bond insurance and credit facility charges and costs and expenses relating to the refunding of First Lien Bonds, Second Lien Obligations, Third Lien Obligations or other obligations issued to finance or refinance one or more Airport Projects.

“Counsel’s Opinion” means a written opinion of Corporation Counsel for the City or other counsel selected by the City. Any Counsel’s Opinion may be based, insofar as it relates to factual matters (information with respect to which is in the possession of the City) upon a Certificate or opinion of, or representation by, an officer of the City, unless the counsel knows, or in the exercise of reasonable care

A-7

should have known, that the Certificate, opinion or representation with respect to the matters upon which the counsel’s opinion may be based, as aforesaid, is erroneous.

“CP Indenture” means any trust indenture entered into between the City and a bank or trust company that authorizes and secures CP Notes.

“CP Notes” means Commercial Paper Notes of any series to finance or refinance Airport Projects.

“Daily Interest Rate” means a variable interest rate for a series of Variable Rate Series 2005 Bonds established in accordance with the Third Lien Indenture.

“Daily Interest Rate Period” means each period during which a Daily Interest Rate is in effect for a series of Variable Rate Series 2005 Bonds.

“Debt Service” means, for any Fiscal Year, the aggregate of (a) General Airport Revenue Bond Debt Service payable for such Fiscal Year, (b) Special Facility Revenue Bond and Other Debt Service payable for such Fiscal Year, and (c) at any time when the General Airport Revenue Bond Ordinance is not in effect, principal payments, interest payments, fund deposit requirements (other than construction fund deposit requirements) and amounts payable as a result of debt service coverage requirements on obligations issued by the City pursuant to the Airport Use Agreements other than Special Facility Revenue Bonds. In addition, for purposes of the Airport Use Agreements, “Debt Service” includes all payments made under any and all agreements providing for the lease or acquisition of the Buses, identified in the Airport Development Plan as Capital Project TA-10(b), exclusive of amounts attributable under such agreements to the O&M Expenses of such Buses.

“Debt Service Reserve Fund” means the Debt Service Reserve Fund created under Section 501 of the General Airport Revenue Bond Ordinance.

“Emergency Reserve Fund Deposit Requirement” means for any Fiscal Year any amount required to be deposited in the Emergency Reserve Fund in such Fiscal Year under the Airport Use Agreements.

“Enplaned Passengers” means all originating and on-line transfer and off-line transfer revenue passengers.

“Event of Default” means an Event of Default as described in Appendix B.

“Existing Third Lien Bonds” means Third Lien Bonds issued prior to the issuance of the Series 2005 Bonds.

“Expiration Date” means, with respect to a series of Variable Rate Series 2005 Bonds, the termination date of the related Liquidity Facility or Alternate Liquidity Facility, as extended from time to time.

“Favorable Opinion of Bond Counsel” means, with respect to any action relating to a series of Variable Rate Series 2005 Bonds, the occurrence of which requires such an opinion, a written legal opinion of Bond Counsel addressed to the Trustee, the City, the related Bond Insurer and the Remarketing Agent or the Broker-Dealers, as applicable, to the effect that such action is permitted under the Third Lien Indenture and will not impair the exclusion of interest on such series of Variable Rate Series 2005 Bonds from gross income for purposes of federal income taxation (subject to customary exceptions).

A-8

“Federal Obligation” means any direct obligation of, or any obligation the full and timely payment of principal of and interest on which is guaranteed by, the United States of America.

“Fiduciary” means the Trustee or any Paying Agent or any or all of them, as may be appropriate.

“First Lien Bonds” means any of the bonds of the City authenticated and delivered pursuant to the General Airport Revenue Bond Ordinance.

“First Lien Debt Service Fund” means the Debt Service Fund created by the General Airport Revenue Bond Ordinance.

“First Lien Debt Service Reserve Fund” means the Debt Service Reserve Fund created by the General Airport Revenue Bond Ordinance.

“First Lien Trustee” means BNY Midwest Trust Company (as successor to Harris Trust and Savings Bank), Chicago, Illinois, as trustee under the General Airport Revenue Bond Ordinance, or its successor as the trustee later appointed in the manner provided in the General Airport Revenue Bond Ordinance.

“Fiscal Year” means January 1 through December 31 of any year, or such other fiscal year as the City may adopt for the Airport.

“Fitch” means Fitch Ratings, a corporation organized and existing under the laws of the State of New York, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, shall be deemed to refer to any other nationally recognized securities rating agency designated by the City by notice to the Trustee, with the consent of the Insurer.

“General Airport Revenue Bond Debt Service” means bonds of the City authenticated and delivered pursuant to the General Airport Revenue Bond Ordinance.

“General Airport Revenue Bond Ordinance” means the ordinance adopted by the City Council of the City on March 31, 1983 entitled “AN ORDINANCE AUTHORIZING THE ISSUANCE BY THE CITY OF CHICAGO OF ITS CHICAGO O’HARE INTERNATIONAL AIRPORT GENERAL AIRPORT REVENUE BONDS, AND PROVIDING FOR THE PAYMENT OF AND SECURITY FOR THE BONDS,” as previously and later supplemented and amended from time to time by supplemental ordinances adopted and effective in accordance with its provisions.

“Government Grants-in-Aid” means those moneys granted to the City by the United States of America or any of its agencies, or the State of Illinois, or any of its political subdivisions or agencies, to pay for all or a portion of the cost of one or more Airport Projects and does not include any payments made for services rendered at the Airport.

“Independent Accountant” means a certified public accountant selected by the City and licensed to practice in the State of Illinois, and who (a) in the case of an individual, is not an officer or employee of the City, (b) is satisfactory to the Trustee and (c) may be the accountant that regularly audits the books of the City or the Airport.

“Independent Airport Consultant” means a consultant selected by the City, with expertise in the administration, financing, planning, maintenance and operations of airports and their facilities, and who, in the case of an individual, is not an officer or employee of the City.

A-9

“Interest Accrual Date” means, for any Weekly Interest Rate Period with respect to a series of Variable Rate Series 2005 Bonds, the first day thereof and, thereafter, the first Business Day of each calendar month during such Weekly Interest Rate Period.

“Interest Payment Date” means any Payment Date on which interest on any Third Lien Obligation is payable.

“Interest Rate Period” means, with respect to a series of Variable Rate Series 2005 Bonds, each Daily Interest Rate Period, Weekly Interest Rate Period, Short-Term Interest Rate Period, Long-Term Interest Rate Period or ARS Interest Rate Period.

“Junior Lien Obligations” means any bonds, notes or evidences of indebtedness secured by Revenues, including the Second Lien Obligations and the Third Lien Obligations, other than First Lien Bonds, issued by the City as permitted by the General Airport Revenue Bond Ordinance or comparable resolution, ordinance, indenture or trust agreement adopted or entered into pursuant to the Master Indenture.

“Junior Lien Obligation Debt Service Fund” means the Junior Lien Obligation Debt Service Fund created by the General Airport Revenue Bond Ordinance or comparable fund established pursuant to a resolution, ordinance, indenture or trust agreement adopted or entered into pursuant to the Master Indenture.

“Junior Lien Revenues” means all sums, amounts, funds or moneys which may be withdrawn from the Junior Lien Obligation Debt Service Fund for the payment of Junior Lien Obligations pursuant to the provisions of the General Airport Revenue Bond Ordinance or comparable resolution, ordinance, indenture or trust agreement adopted or entered into pursuant to the Master Indenture.

“Land Support Area” means the facilities, uses, leases, land and air rights, if any, identified as such in that certain Amended and Restated Airport Use Agreement and Terminal Facilities Lease, dated as of January 1, 1985, as amended, between the City and certain Airline Parties (as therein identified) or any successor to that agreement.

“Landing Fee Rate” means the Landing Fee Rate established pursuant to the Airport Use Agreements.

“Landing Fees” means, with respect to each Airline Party, the Landing Fees calculated pursuant to such Airline Party’s Airport Use Agreement.

“Liquidity Facility” means, with respect to a series of Variable Rate Series 2005 Bonds, a letter of credit, standby bond purchase agreement, lien of credit, loan, guaranty or similar agreement, acceptable to the related Bond Insurer, issued by a Liquidity Facility Provider to provide liquidity support to pay the Tender Price of such series of Variable Rate Series 2005 Bonds (other than ARS) tendered for purchase in accordance with the provision of the Third Lien Indenture and any Alternate Liquidity Facility with respect to such series of Variable Rate Series 2005 Bonds delivered pursuant to the Third Lien Indenture, and with terms that are not inconsistent with the terms of the Third Lien Indenture.

“Liquidity Facility Provider” means, with respect to a series of Variable Rate Series 2005 Bonds, the provider of a Liquidity Facility, and its successors and permitted assigns, each having been approved by the related Bond Insurer and, upon the effective date of an Alternate Liquidity Facility with respect to such series of Variable Rate Series 2005 Bonds, the bank or banks or other financial institution or financial institutions or other Person or Persons issuing such Alternate Liquidity Facility, their successors

A-10

and assigns, subject to the approval of the related Bond Insurer. If any Alternate Liquidity Facility is issued by more than one bank, financial institution or other Person, notices required to be given to the Liquidity Facility Provider may be given to the bank, financial institution or other Person under such Alternate Liquidity Facility appointed to act as agent for all such banks, financial institutions or other Persons.

“Liquidity Facility Purchase Subaccount” means, with respect to each series of Variable Rate Series 2005 Bonds, the subaccount of that name established within the Bond Purchase Fund.

“Long-Term Interest Rate” means, with respect to a series of Variable Rate Series 2005 Bonds, a term, non-variable interest rate established in accordance with the Third Lien Indenture.

“Long-Term Interest Rate Period” means, with respect to a series of Variable Rate Series 2005 Bonds, each period during which a Long-Term Interest Rate is in effect.

“Maintenance Reserve Fund” means the Maintenance Reserve Fund created under the Airport Use Agreements.

“Mandatory Standby Tender” means the mandatory tender of a series of Variable Rate Series 2005 Bonds pursuant to the Third Lien Indenture upon receipt by the Trustee of written notice from the related Liquidity Facility Provider that an event with respect to the related Liquidity Facility has occurred which requires or gives such Liquidity Facility Provider the option to terminate such Liquidity Facility upon notice. Mandatory Standby Tender shall not include circumstances where the Liquidity Facility Provider may suspend or terminate its obligations to purchase securities without notice, in which case there will be no mandatory tender.

“Master Indenture” means the Master Indenture of Trust Securing Chicago O’Hare International Airport Third Lien Obligations, dated as of March 1, 2002, from the City to the Trustee, as supplemented and amended from time to time to provide for the issuance of Third Lien Obligations, including the Existing Third Lien Bonds and the Series 2005 Bonds.

“Maximum Bank Bond Interest Rate” means the lesser of (a) the rate of 18% per annum, and (b) the Maximum Lawful Rate.

“Maximum Bond Interest Rate” means (a) with respect to Variable Rate Series 2005C Bonds other than ARS, the lesser of 12% per annum and the Maximum Lawful Rate, (b) with respect to Variable Rate Series 2005D Bonds other than ARS, the lesser of 12% per annum and the Maximum Lawful Rate, and (c) with respect to ARS, the lesser of 15% per annum and the Maximum Lawful Rate, in each case calculated in the same manner as interest is calculated for the particular interest rate on such series of Variable Rate Series 2005 Bonds.

“Maximum Lawful Rate” means the maximum rate of interest on the relevant obligation permitted by the Ordinance.

“Moody’s” means Moody’s Investors Service Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency designated by the City by notice to the Trustee.

A-11

“Non-Common Reserve Bonds” means the Series 2002A Bonds, the Series 2004B Bonds and the Series 2004E Bonds.

“Operation and Maintenance Expenses” means:

(a) “Operation and Maintenance Expenses” as defined in the General Airport Revenue Bond Ordinance at any time First Lien Bonds are outstanding under the General Airport Revenue Bond Ordinance;

(b) “Operation and Maintenance Expenses” as defined in the Second Lien Master Indenture at any time Second Lien Obligations are outstanding under the Second Lien Master Indenture, but First Lien Bonds are not outstanding under the General Airport Revenue Bond Ordinance; and

(c) if neither clause (a) nor clause (b) applies, “Operation and Maintenance Expenses” means, for any Fiscal Year, the costs incurred by the City in operating and maintaining the Airport (excluding the Land Support Area) during that Fiscal Year, either directly or indirectly, including, without limitation (but exclusive of those expenses as may be capitalized in connection with an Airport Project):

(i) costs and expenses incurred by the City for employees of the City employed at the Airport, or doing work involving the Airport, including, but not limited to, direct salaries and wages (including overtime pay), together with payments or costs incurred for associated payroll expenses, such as union contributions, cash payments to pension funds, retirement funds or unemployment compensation funds, life, health, accident and unemployment insurance premiums, deposits for self-insurance, vacations and holiday pay, and other fringe benefits;

(ii) costs of materials, supplies, machinery and equipment and other similar expenses;

(iii) costs of maintenance, landscaping, decorating, repairs, renewals and alterations not reimbursed by insurance;

(iv) costs of water, electricity, natural gas, telephone service and all other utilities and services whether furnished by the City or purchased by the City and furnished by independent contractors at or for the Airport;

(v) costs of rentals of real property;

(vi) costs of rentals of equipment or other personal property;

(vii) costs of premiums for insurance, including property damage, public liability, burglary, bonds of employees, workers’ compensation, disability, automobile, and all other insurance covering the Airport or its operations;

(viii) the amount of any judgment or settlement arising as a result of the City’s ownership, operation and maintenance of the Airport payable by the City during that Fiscal Year, including, without limitation, the amount of any judgment or settlement arising as a result of claims, actions, proceedings or suits alleging a taking of property or interests in property without just compensation, trespass, nuisance, property damage,

A-12

personal injury or similar claims, actions, proceedings or suits based upon the environmental impacts, including, without limitation, those resulting from the use of the Airport for the landing and taking off of aircraft;

(ix) costs incurred in collecting and attempting to collect any sums due the City in connection with the operation of the Airport;

(x) costs of advertising at or for the Airport;

(xi) compensation paid or credited to persons or firms appointed or engaged, from time to time, to render advice and perform architectural, engineering, construction management, financial, legal, accounting, testing, consulting or other professional services in connection with the Airport;

(xii) any other cost incurred or allocated to the Airport necessary to comply with any valid rule, regulation, policy or order of any federal, state or local government, agency or court; and

(xiii) all other direct and indirect expenses, whether similar or dissimilar, which arise out of the City’s ownership, operation or maintenance of the Airport, including any taxes payable by the City which may be lawfully imposed upon the Airport.

“Operation and Maintenance Expense Projection” means for any Fiscal Year the estimate of Operation and Maintenance Expenses (excluding Operation and Maintenance Expenses of the Land Support Area and required deposits into the Operation and Maintenance Reserve Fund and Maintenance Reserve Fund) for such Fiscal Year prepared pursuant to the Airport Use Agreements.

“Operation and Maintenance Reserve Fund Deposit Requirement” means for any Fiscal Year the amount, if any, required to increase the balance in the Operation and Maintenance Reserve Fund (including amounts receivable from the Operation and Maintenance Fund) to an amount equal to one-fourth of such Fiscal Year’s Operation and Maintenance Expense Projection as adjusted pursuant to the Airport Use Agreements.

“Ordinance” means the ordinance duly adopted and approved by the City Council of the City on June 8, 2005, which authorizes the issuance and sale of the Variable Rate Series 2005 Bonds and the execution of the Nineteenth and Twenty-First Supplemental Indentures.

“Other Available Moneys” means for any Fiscal Year the amount of money determined by the Chief Financial Officer to be transferred by the City for that Fiscal Year from sources other than Revenues to the Revenue Fund.

“Outstanding,” when used with reference to the Third Lien Obligations, means, as of any date, all Third Lien Obligations before or on that date being issued under the Master Indenture or incurred pursuant to the Master Indenture except:

(a) Third Lien Obligations cancelled by the Trustee or the Owner of a Third Lien Section 208 Obligation, as the case may be, at or before that date or delivered before that date to the Trustee or to the City, as the case may be, for cancellation;

A-13

(b) Third Lien Obligations (or portions of Third Lien Obligations) for the payment or redemption of which there are held in trust and set aside for such payment or redemption (whether at, before or after the maturity or redemption date) moneys or Federal Obligations the principal of and interest on which when due or payable will provide moneys, together with the moneys, if any, deposited with the Trustee at the same time, in an amount sufficient to pay their principal or Redemption Price, as the case may be, with interest to the date of maturity or redemption date, and, if those Third Lien Obligations are to be redeemed, for which notice of the redemption has been given as provided in the related Supplemental Indenture or provisions satisfactory to the Trustee have been made for giving the notice;

(c) Third Lien Obligations for the transfer or exchange of, in lieu of or in substitution for which other Third Lien Obligations have been authenticated and delivered pursuant to the Master Indenture; and

(d) Third Lien Obligations deemed to have been paid as provided in the Master Indenture.

“Paying Agent” means any bank or trust company designated as a paying agent for a Series and its successor or successors later appointed in the manner provided in the Master Indenture.

“Payment Date” means any date on which a Principal Installment or interest on any Series of Third Lien Obligations is payable in accordance with its terms and the terms of the Master Indenture and the Supplemental Indenture creating the Series or, in the case of Third Lien Section 208 Obligations or amounts payable under any Qualified Third Lien Swap Agreement, in accordance with the terms of the instrument creating the Third Lien Section 208 Obligations or the Qualified Third Lien Swap Agreement.

“Person” means an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization, including a governmental or political subdivision or an agency or instrumentality thereof.

“Principal and Interest Account” means the account of that name established in the applicable Dedicated Sub-Fund.

“Principal and Interest Account Requirement” means (a) the amount required to be deposited into the Principal and Interest Account for the payment of principal of the Variable Rate Series 2005 Bonds of a series pursuant to the Indenture, plus (b) for the payment of interest on the Variable Rate Series 2005 Bonds of such series,

(i) during such time as the Variable Rate Series 2005 Bonds of such series bear interest at a Long-Term Interest Rate, the amount of interest due on the Variable Rate Series 2005 Bonds of such series on the current Deposit Date; and

(ii) during such time as the Variable Rate Series 2005 Bonds of such series bear interest at an interest rate other than (a) Long-Term Interest Rate, six months’ interest on the Variable Rate Series 2005 Bonds of such series based upon the amount of the Variable Rate Series 2005 Bonds of such series outstanding as of the first day of the current Bond Year and an assumed annual interest rate equal to the greater of (x) 8% per annum, or (y) such higher rate per annum as is set forth in a Certificate of the City filed with the Trustee (which higher rate may be increased or decreased from time to time by the City in a Certificate filed with the Trustee, but not below 8% per annum).

A-14

The determination of interest amounts in accordance with clauses (i) and (ii) above shall be reduced by amounts to be transferred into the Principal and Interest Account from the Capitalized Interest Account on such Deposit Date pursuant to a Certificate of the City and in the case of each January 1 Deposit Date by any investment earnings credited as of the immediately prior calculation date to the Principal and Interest Account.

“Principal Installment” means,

(a) as of any particular date of computation and with respect to First Lien Bonds of a particular series, an amount of money equal to the aggregate of (i) the principal amount of Outstanding (as defined in the General Airport Revenue Bond Ordinance) First Lien Bonds of that series which mature on a single future date, reduced by the aggregate principal amount of the Outstanding First Lien Bonds of that series which would at or before that future date be retired by reason of the payment when due and application in accordance with the General Airport Revenue Bond Ordinance of Sinking Fund Payments payable at or before that future date for the retirement of the Outstanding First Lien Bonds of that series, plus (ii) the amount of any Sinking Fund Payments payable on that future date for the retirement of any Outstanding First Lien Bonds of that series, and that future date is, for all purposes of the Master Indenture, deemed to be the date when that Principal Installment is payable and the date of that Principal Installment;

(b) as of any particular date of computation and with respect to Second Lien Obligations of a particular series or consisting of a particular Second Lien Section 208 Obligation, an amount of money equal to the aggregate of (i) the principal amount of Outstanding (as defined in the Second Lien Indenture) Second Lien Obligations of that series or Second Lien Section 208 Obligations which mature on a single future date, reduced by the aggregate principal amount of the Outstanding Second Lien Obligations of that series which would at or before that future date be retired by reason of the payment when due and the application in accordance with the Second Lien Indenture and the Second Lien Supplemental Indenture creating the series or the instrument creating the Second Lien Section 208 Obligations of Sinking Fund Payments payable at or before that future date for the retirement of the Outstanding Second Lien Obligations of that series, plus (ii) the amount of any Sinking Fund Payments payable on that future date for the retirement of those Outstanding Second Lien Obligations of that series, and that future date is, for all purposes of the Master Indenture, deemed to be the date when that Principal Installment is payable and the date of that Principal Installment; and

(c) as of any particular date of computation and with respect to Third Lien Obligations of a particular Series or consisting of a particular Third Lien Section 208 Obligation, an amount of money equal to the aggregate of (i) the principal amount of Outstanding Third Lien Obligations of that Series or Third Lien Section 208 Obligations which mature on a single future date, reduced by the aggregate principal amount of the Outstanding Third Lien Obligations of that Series which would at or before that future date be retired by reason of the payment when due and the application in accordance with the Master Indenture and the Supplemental Indenture creating the Series or the instrument creating those Third Lien Section 208 Obligations of Sinking Fund Payments payable at or before that future date for the retirement of the Outstanding Third Lien Obligations of that Series, plus (ii) the amount of any Sinking Fund Payments payable on that future date for the retirement of the Outstanding Third Lien Obligations of that Series, and that future date is for all purposes of the Master Indenture, deemed to be the date when the Principal Installment is payable and the date of the Principal Installment.

“Program Fee Account” means, with respect to each series of Variable Rate Series 2005 Bonds, the account of that name established in the applicable Dedicated Sub-Fund.

A-15

“Project Account” means, with respect to each series of Variable Rate Series 2005 Bonds, the account of that name established in the applicable Dedicated Sub-Fund.

“Qualified Collateral” means:

(a) Federal Obligations;

(b) direct and general obligations of any State of the United States of America or any political subdivision of the State of Illinois which are rated in one of the two highest rating categories by any two Rating Agencies without regard to any refinement or gradation of rating category by numerical modifier or otherwise; and

(c) public housing bonds issued by public housing authorities and fully secured as to the payment of both principal and interest by a pledge of annual contributions under an annual contributions contract or contracts with the United States of America, or project notes issued by public housing authorities, or project notes issued by local public agencies, in each case fully secured as to the payment of both principal and interest by a requisition or payment agreement with the United States of America.

“Qualified Credit Provider” means the issuer of a Qualified Reserve Account Credit Instrument, if any.

“Qualified Investments” means:

(a) Federal Obligations;

(b) pre-refunded municipal obligations meeting the following conditions: (i) the municipal obligations are not subject to redemption prior to maturity, or the trustee therefor has been given irrevocable instructions concerning their calling and redemption and the issuer thereof has covenanted not to redeem such obligations other than as set forth in such instructions; (ii) the municipal obligations are secured by cash and/or Federal Obligations, which Federal Obligations may be applied only to interest, principal and premium payments of such municipal obligations; (iii) the principal of and interest on the Federal Obligations (plus any cash in the escrow fund) are sufficient to meet the liabilities of the municipal obligations; (iv) the Federal Obligations serving as security for the municipal obligations are held by an escrow agent or trustee; (v) the Federal Obligations are not available to satisfy any other claims, including those against the trustee or escrow agent; and (vi) the municipal obligations are rated in the highest rating category by any two Rating Agencies without regard to any refinement or gradation of rating category by numerical modifier or otherwise;

(c) deposits in interest-bearing deposits or certificates of deposit or similar arrangements issued by any bank or national banking association, including the Trustee, which deposits, to the extent not insured by the Federal Deposit Insurance Corporation, shall be secured by Qualified Collateral having a current market value (exclusive of accrued interest) at least equal to the amount of such deposits, marked to market monthly, and which Qualified Collateral shall have been deposited in trust by such bank or national banking association with the trust department of the Trustee or with a Federal Reserve Bank or branch or, with the written approval of the City and the Trustee, with another bank, trust company or national banking association for the benefit of the City and the appropriate Fund or Account as collateral security for such deposits;

A-16

(d) direct and general obligations of any state of the United States of America or any political subdivision of the State of Illinois which are rated in one of the two highest rating categories by any two Rating Agencies without regard to any refinement or gradation of rating category by numerical modifier or otherwise;

(e) obligations issued by any of the following agencies: Banks for Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks System, Federal Land Banks, Export Import Bank, Tennessee Valley Authority, Government National Mortgage Association, Farmers Home Administration, United States Postal Service, Fannie Mae, Student Loan Marketing Association, Federal Farm Credit Bureau, Federal Home Loan Mortgage Corporation, Federal Housing Administration, any agency or instrumentality of the United States of America and any corporation controlled and supervised by, and acting as an agency or instrumentality of, the United States of America;

(f) any repurchase agreements collateralized by securities described in clauses (a) or (e) above with any registered broker/dealer subject to the Securities Investors’ Protection Corporation jurisdiction or any commercial bank, if such broker/dealer or bank or parent holding company providing a guaranty has an uninsured, unsecured and unguaranteed rating in one of the three highest rating categories by any two Rating Agencies without regard to any refinement or gradation of rating category by numerical modifier or otherwise, provided (i) a specific written agreement governs the transaction; (ii) the securities are held by a depository acting solely as agent for the Trustee, and such third party is (x) a Federal Reserve Bank, or (y) a bank which is a member of the Federal Deposit Insurance Corporation and with combined capital, surplus and undivided profits of not less than $25,000,000, and the Trustee shall have received written confirmation from such third party that it holds such securities; (iii) a perfected first security interest under the Uniform Commercial Code, or book entry procedures prescribed at 1 C.F.R. 306.1 et seq. or 31 C.F.R. 350.0 et seq. in such securities is created for the benefit of the Trustee; (iv) the repurchase agreement has a term of one year or less, or the collateral securities will be valued no less frequently than monthly and will be liquidated if any deficiency in the required collateral percentage is not restored within two business days of such valuation; (v) the repurchase agreement matures at least 10 days (or other appropriate liquidation period) prior to a Payment Date; and (vi) the fair market value of the securities in relation to the amount of the repurchase obligations, including principal and interest, is equal to at least 100 percent;

(g) shares of an investment company, organized under the Investment Company Act of 1940, as amended, which invests its assets exclusively in obligations of the type described in clauses (a) to (e);

(h) investment agreements which represent the unconditional obligation of one or more banks, insurance companies or other financial institutions, or are guaranteed by a financial institution, in either case that has an unsecured rating, or which agreement is itself rated, as of the date of execution thereof, in one of the three highest rating categories by any two Rating Agencies without regard to any refinement or gradation of rating category by numerical modifier or otherwise;

(i) long-term or medium-term corporate debt instruments issued or guaranteed by any corporation that is rated in the highest rating category by any two Rating Agencies without regard to any refinement or gradation of rating category by numerical modifier or otherwise;

A-17

(j) prime commercial paper of a United States corporation, finance company or banking institution rated in the highest short-term rating category by any two Rating Agencies maintaining a rating on such paper; and

(k) any other type of investment in which the City directs the Trustee in writing to invest, provided that there is delivered to the Trustee a Certificate of an Authorized Officer stating that each Rating Agency has been informed of the proposal to invest in such investment and each Rating Agency has confirmed that such investment will not adversely affect the rating then assigned by such Rating Agency to any Third Lien Obligations.

“Qualified Reserve Account Credit Instrument” means a letter of credit, surety bond or non-cancelable insurance policy issued by a domestic or foreign bank, insurance company or other financial institution whose debt obligations on the date of issuance thereof are rated in the highest rating category by S&P and Moody’s and, if rated by A.M. Best & Company, is rated in the highest rating category by A.M. Best & Company. Any such letter of credit, surety bond or insurance policy shall be issued in the name of the Trustee and shall contain no restrictions on the ability of the Trustee to receive payment thereunder other than a certification of the Trustee that the funds drawn thereunder are to be used for purposes for which moneys in the Common Debt Service Reserve Account may be used under the Second Supplemental Indenture.

“Qualified Third Lien Swap Agreement” means an agreement between the City and a Swap Provider under which the City agrees to pay the Swap Provider an amount calculated at an agreed-upon rate or index based upon a notional amount and the Swap Provider agrees to pay the City for a specified period of time an amount calculated at an agreed-upon rate or index based upon the notional amount, where (a) each Rating Agency (if the Rating Agency also rates the unsecured obligations of the Swap Provider or its guarantor) has assigned to the unsecured obligations of the Swap Provider or of the party who guarantees the obligation of the Swap Provider to make its payments to the City, as of the date the swap agreement is entered into, a rating that is equal to or higher than the rating then assigned to the Third Lien Obligations by the Rating Agency (without regard to municipal bond insurance or any other credit facility), and (b) the City has notified each Rating Agency (whether or not a Rating Agency also rates the unsecured obligations of the Swap Provider or its guarantor) in writing, at least 15 days before executing and delivering the swap agreement, of its intention to enter into the swap agreement and has received from each Rating Agency a written indication that the entering into of the swap agreement by the City will not in and of itself cause a reduction or withdrawal by the Rating Agency of its rating on the Third Lien Obligations.

“Rating Agency” means any rating agency that has an outstanding credit rating assigned to any Third Lien Obligations.

“Record Date” means (a) with respect to Variable Rate Series 2005 Bonds other than ARS, (i) with respect to any Interest Payment Date in respect to any Daily Interest Rate Period, the last Business Day of each calendar month or, in the case of the last Interest Payment Date in respect to a Daily Interest Rate Period, the Business Day immediately preceding such Interest Payment Date, (ii) with respect to any Interest Payment Date in respect to any Weekly Interest Rate Period or any Short-Term Interest Rate Period, the Business Day immediately preceding such Interest Payment Date, and (iii) with respect to any Interest Payment Date in respect to any Long-Term Interest Rate Period, the fifteenth day immediately preceding hat Interest Payment Date, or, in the event that an Interest Payment Date shall occur less than 15 days after the first day of a Long-Term Interest Rate Period, that first day, and (b) with respect to any Bonds which are ARS, the Second Business Day next preceding each ARS Interest Payment Date.

A-18

“Redemption Price” means, with respect to any Series of Third Lien Obligations, their principal amount plus the applicable premium, if any, payable upon their redemption pursuant to the provisions of the Third Lien Obligations or the Supplemental Indenture creating the Series of Third Lien Obligations, or such other redemption price as may be specified in the Third Lien Obligations or Supplemental Indenture.

“Refunding Bonds” means all Third Lien Obligations, whether issued in one or more Series, authenticated and delivered on original issuance for the purpose of the refunding of Airport Obligations of any series, and all Third Lien Obligations thereafter authenticated and delivered in lieu of or in substitution for the Third Lien Obligations pursuant to the Master Indenture and the Supplemental Indenture creating the Series of Third Lien Obligations.

“Registered Owner,” “Owner” or “Holder” means the person or persons in whose name a Variable Rate Series 2005 Bond shall be registered on the books of the City kept for that purpose in accordance with the provisions of the Master Indenture.

“Regulations” means the Income Tax Regulations (26 C.F.R. Part 1) promulgated under and pursuant to the Code.

“Released Revenues” means Revenues in respect of which the Trustee has received the following:

(a) a request of an Authorized Officer describing such Revenues and requesting that those Revenues be excluded from the pledge and lien of the Master Indenture on Revenues;

(b) an Independent Airport Consultant’s Certificate, based upon reasonable assumptions, to the effect that Revenues, after the Revenues covered by the Authorized Officer’s request are excluded for each of the five full Fiscal Years following the Fiscal Year in which such Certificate is delivered, will be sufficient to enable the City to satisfy the coverage covenant set forth in Appendix B in each of those five Fiscal Years;

(c) a Counsel’s Opinion to the effect that (i) the conditions set forth in the Master Indenture to the release of those Revenues have been met and (ii) the exclusion of those Revenues from the pledge and lien of the Master Indenture will not, in and of itself, cause the interest on any outstanding Third Lien Obligations to be included in gross income from purposes of federal income taxation; and

(d) written confirmation from each of the Rating Agencies to the effect that the exclusion of those Revenues from the pledge and lien of the Master Indenture will not cause a withdrawal or reduction in any unenhanced rating then assigned to any Third Lien Obligations.

Upon the Trustee’s receipt of those documents, the Revenues described in the Authorized Officer’s request shall be excluded from the pledge and lien of the Master Indenture, and the Trustee shall take all reasonable steps requested by the Authorized Officer to evidence or confirm the release of that pledge and lien on the Released Revenues.

“Remarketing Agent” means, with respect to each series of Variable Rate Series 2005 Bonds, each Person qualified under the Third Lien Indenture to act as Remarketing Agent for such series of Variable Rate Series 2005 Bonds other than ARS and appointed by the City from time to time, subject to the approval of the related Bond Insurer.

A-19

“Remarketing Agreement” means a Remarketing Agreement between the City and the Remarketing Agent whereby the Remarketing Agent undertakes to perform the duties of the Remarketing Agent under the Third Lien Indenture, as amended from time to time.

“Reserve Requirement” means the maximum amount of principal of and interest payable on the Common Reserve Bonds in the current or any succeeding Bond Year; provided, however, that if upon the issuance of a series of Common Reserve Bonds such amount would require that moneys be paid into the Common Debt Service Reserve Account from the proceeds of such Common Reserve Bonds in an amount in excess of the maximum amount permitted under the Code, the Reserve Requirement shall be the sum of (a) the Reserve Requirement immediately preceding the issuance of such Common Reserve Bonds and (b) the maximum amount permitted under the Code to be deposited from the proceeds of such Common Reserve Bonds, as certified by the Chief Financial Officer.

“Revenue Fund” means the Revenue Fund created by the General Airport Revenue Bond Ordinance or comparable fund established pursuant to the Master Indenture.

“Revenues” means:

(a) “Revenues” as defined in the General Airport Revenue Bond Ordinance at any time First Lien Bonds are outstanding under the General Airport Revenue Bond Ordinance;

(b) “Revenues” as defined in the Second Lien Indenture at any time Second Lien Obligations are outstanding under the Second Lien Indenture, but First Lien Bonds are not outstanding under the General Airport Revenue Bond Ordinance; and

(c) if neither clause (a) nor clause (b) applies, “Revenues” means and includes all amounts received or receivable directly or indirectly by the City for the use and operation of, or with respect to, the Airport (excluding the Land Support Area), including, without limitation: all airline fees and charges (excluding payments described in clause (i) below); all other rentals, charges and fees for the use of the Airport or for any service rendered by the City in the operation of the Airport; concession revenues; interest payments to the City; interest accruing on, and any profit realized from the investment of, moneys held or credited to all Airport funds and accounts of the City; provided, however, that Revenues does not include: (i) any amounts derived by the City from Special Facility Financing Arrangements entered into in connection with Special Facilities to the extent those moneys derived are required to pay principal of, premium, if any, and interest on Special Facility Revenue Bonds and all sinking and other reserve fund payments required by the ordinance or resolution authorizing the issuance of the Special Facility Revenue Bonds; (ii) the proceeds of any passenger facility charge, customer facility charge or similar tax or charge levied by or on behalf of the City, including but not limited to, any cargo facility charge or security charge; (iii) the proceeds of any tax levied by or on behalf of the City; (iv) interest accruing on, and any profit resulting from the investment of, moneys in any fund or account of the Airport that is not available by agreement or otherwise for deposit into the Revenue Fund; (v) Government Grants-in-Aid; (vi) insurance proceeds which are not deemed to be revenues in accordance with generally accepted accounting principles; (vii) the proceeds of any condemnation awards; (viii) security deposits and the proceeds of the sale of any Airport property; and (ix) the proceeds of any borrowings by the City.

Unless otherwise provided in a Supplemental Indenture, there shall also be excluded from the term “Revenues” any Released Revenues in respect of which the City has filed with the Trustee the documents contemplated in the definition of the term “Released Revenues.”

A-20

“Second Lien Bonds” means any of the bonds, notes or evidences of indebtedness issued by the City under and pursuant to Article II of the Second Lien Indenture.

“Second Lien Indenture” means the Master Indenture of Trust, dated as of September 1, 1984, between the City and the Second Lien Trustee, as amended or supplemented from time to time.

“Second Lien Obligations” means (a) any of the bonds, notes or evidences of indebtedness issued by the City under and pursuant to Article II of the Second Lien Indenture and (b) any Second Lien Section 208 Obligations.

“Second Lien-Related Obligations” means obligations incurred by the City in accordance with the Master Indenture in connection with Second Lien Obligations pursuant to any swap agreement, reimbursement agreement relating to a debt service reserve account surety bond or similar agreement.

“Second Lien Revenue Fund” means the Second Lien Revenue Fund created by the Second Lien Indenture.

“Second Lien Revenues” means all Junior Lien Revenues paid to the Second Lien Trustee pursuant to the General Airport Revenue Bond Ordinance or comparable resolution, ordinance, indenture or trust agreement adopted or entered into pursuant to the Master Indenture.

“Second Lien Section 208 Obligations” means any obligations incurred by the City to reimburse the issuer or issuers of one or more letters of credit securing one or more series of Second Lien Obligations as described in Section 208 of the Second Lien Indenture, including any fees or other amounts payable to the issuer of any such letter of credit, whether the obligations are set forth in one or more reimbursement agreements entered into between the City and the issuer of any such letter of credit, or in one or more notes or other evidences of indebtedness executed and delivered by the City pursuant thereto, or any combination of them.

“Second Lien Supplemental Indenture” means an indenture supplemental to or amendatory of the Second Lien Indenture, executed and delivered by the City and the Second Lien Trustee in accordance with the Second Lien Indenture.

“Second Lien Trustee” means J.P. Morgan Trust Company, National Association, Chicago, Illinois (as successor to Bank One, National Association), as trustee under the Second Lien Indenture, or its successor as the trustee later appointed in the manner provided in the Second Lien Indenture.

“Second Supplemental Indenture” means the Second Supplemental Indenture securing Chicago O’Hare International Airport Third Lien Revenue Refunding Bonds, Series 2003A, dated August 1, 2003, from the City to the Trustee supplementing the Indenture and pursuant to which the Common Debt Service Reserve Account is created and held.

“Series” means all of the Third Lien Obligations authenticated and delivered on original issuance pursuant to a Supplemental Indenture and designated in it as a series, but, unless the context clearly indicates otherwise, does not include Third Lien Section 208 Obligations or obligations of the City under a Qualified Third Lien Swap Agreement.

A-21

“Series 2002A Bonds” means the Chicago O’Hare International Airport General Airport Third Lien Revenue Refunding Bonds, Series 2002A.

“Series 2004B Bonds” means the Chicago O’Hare International Airport General Airport Third Lien Revenue Refunding Bonds, Series 2004B (Non-AMT).

“Series 2004E Bonds” means the City of Chicago Chicago O’Hare International Airport General Airport Third Lien Revenue Refunding Bonds, Taxable Series 2004E.

“Sinking Fund Payment” means:

(a) as of any particular date of determination and with respect to the outstanding First Lien Bonds of any series, the amount required by a Supplemental General Airport Revenue Bond Ordinance to be paid in any event by the City on a single future date for the retirement of First Lien Bonds of the series which mature after that future date, but does not include any amount payable by the City by reason only of the maturity of a First Lien Bond;

(b) as of any particular date of determination and with respect to the outstanding Second Lien Obligations of any series or consisting of any Second Lien Section 208 Obligations, the amount required by the Second Lien Supplemental Indenture creating the series or the instrument creating the Second Lien Section 208 Obligation to be paid in any event by the City on a single future date for the retirement of the series which mature after that future date, but does not include any amount payable by the City by reason only of the maturity of a Second Lien Obligation; and

(c) as of any particular date of determination and with respect to the outstanding Third Lien Obligations of any Series or consisting of any Third Lien Section 208 Obligations, the amount required by the Supplemental Indenture creating the Series or the instrument creating these Third Lien Section 208 Obligation to be paid in any event by the City on a single future date for the retirement of the Third Lien Obligations which mature after that future date, but does not include any amount payable by the City by reason only of the maturity of a Third Lien Obligation.

“Special Capital Projects Fund” means the Special Capital Projects Fund created under the Airport Use Agreements.

“Special Facility” means a building, facility or improvement at the Airport, or portion thereof, that has been or is to be constructed, installed, equipped or acquired with the proceeds of the sale of Special Facility Revenue Bonds or sources other than Revenues.

“Special Facility Financing Arrangement” means any agreement creating or relating to Special Facility Revenue Bonds.

“Special Facility Revenue Bonds” means obligations of the City with respect to which the principal, premium, if any, and interest are payable solely from proceeds of the sale of those obligations and from sources other than Revenues, and for which the City has no taxing obligation.

“S&P” means Standard & Poor’s, a division of The McGraw Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating

A-22

agency, “S&P” shall be deemed to refer to any other nationally recognized securities rating agency designated by the City by notice to the Trustee.

“Supplemental General Airport Revenue Bond Ordinance” means an ordinance supplemental to or amendatory of the General Airport Revenue Bond Ordinance as originally adopted on March 31, 1983, adopted by the City Council and effective as provided in the General Airport Revenue Bond Ordinance.

“Supplemental Indenture” means an indenture supplemental to or amendatory of the Master Indenture, executed and delivered by the City and the Trustee in accordance with the Master Indenture.

“Swap Provider” means any counterparty with which the City enters into a Qualified Third Lien Swap Agreement.

“Tender Agent” means each Person qualified under the Third Lien Indenture to act as Tender Agent with respect to a series of Variable Rate Series 2005 Bonds other than ARS and so appointed by the City and so acting from time to time, and its successors.

“Tender Agent Agreement” means an agreement among the City, a Remarketing Agent, the Trustee and a Tender Agent whereby such Tender Agent undertakes to perform the duties of the Tender Agent under the Third Lien Indenture with respect to a series of Variable Rate Series 2005 Bonds, as amended from time to time.

“Tender Date” means, with respect to each series of Variable Rate Series 2005 Bonds, the date on which Variable Rate Series 2005 Bonds of such series are required to be purchased pursuant to the Third Lien Indenture.

“Tender Price” means the purchase price to be paid to the Holders of Variable Rate Series 2005 Bonds purchased pursuant to the Third Lien Indenture, which shall be equal to the principal amount thereof tendered for purchase, without premium, plus accrued interest from the immediately preceding Interest Accrual Date to the Tender Date (if the Tender Date is not an Interest Payment Date); provided, however, that in the case of a Conversion or attempted Conversion from a Long-Term Interest Rate Period on a date on which the Variable Rate Series 2005 Bonds being converted would otherwise be subject to optional redemption pursuant to the Third Lien Indenture if such Conversion did not occur, the Tender Price shall also include the optional redemption premium, if any, provided for such date under the Third Lien Indenture.

“Terminal Area Rentals” means, with respect to each Airline Party, the Terminal Area Rentals calculated pursuant to Article V of such Airline Party’s Airport Use Agreement.

“Terminal Area Use Charges” means, with respect to each Airline Party, the Terminal Area Use Charges calculated pursuant to Article V of such Airline Party’s Airport Use Agreement.

“Third Lien Bonds” means any of the bonds, notes or evidences of indebtedness issued by the City under and pursuant to Article II of the Master Indenture.

“Third Lien Indenture” means the Master Indenture, as amended or supplemented from time to time.

“Third Lien Obligations” means (a) any of the bonds, notes or evidences of indebtedness issued by the City under and pursuant to Article II of the Master Indenture, (b) any Third Lien Section 208 Obligations, and (c) obligations of the City under a Qualified Third Lien Swap Agreement except to the

A-23

extent those obligations are subordinated under the Master Indenture or any Supplemental Indenture or under that agreement.

“Third Lien Revenue Fund” means the Third Lien Revenue Fund created by the Master Indenture.

“Third Lien Revenues” means all Junior Lien Revenues paid to the Trustee pursuant to the General Airport Revenue Bond Ordinance or comparable resolution, ordinance, indenture or trust agreement adopted or entered into pursuant to the Master Indenture.

“Third Lien Section 208 Obligations” means any obligations incurred by the City to reimburse the issuer or issuers of one or more instruments securing one or more Series of Third Lien Obligations as described in Section 208 of the Master Indenture, including any fees or other amounts payable to the issuer of any such instrument, whether those obligations are set forth in one or more reimbursement agreements entered into between the City and the issuer of any such instrument, or in one or more notes or other evidences of indebtedness executed and delivered by the City pursuant thereto, or any combination of them.

“Trust Estate” means the property conveyed to the Trustee pursuant to the Granting Clauses of the Master Indenture.

“Trustee” means LaSalle Bank National Association, Chicago, Illinois, as trustee under the Master Indenture, or its successor as the trustee later appointed in the manner provided in the Master Indenture.

“Undelivered Bond” means any Variable Rate Series 2005 Bond of a series that has not been delivered for purchase by the Holder in accordance with the terms of the Third Lien Indenture.

“Weekly Interest Rate” means, with respect to a series of Variable Rate Series 2005 Bonds, a variable interest rate for such series of Variable Rate Series 2005 Bonds established in accordance with the Third Lien Indenture.

“Weekly Interest Rate Period” means, with respect to a series of Variable Rate Series 2005 Bonds, each period during which a Weekly Interest Rate is in effect for such series of Variable Rate Series 2005 Bonds.

APPENDIX B

SUMMARY OF CERTAIN PROVISIONS OF THE THIRD LIEN INDENTURE

B-1

APPENDIX B

SUMMARY OF CERTAIN PROVISIONS OF THE THIRD LIEN INDENTURE

The following is a summary of certain provisions of the Master Indenture as heretofore supplemented and amended, particularly by the Nineteenth Supplemental Indenture and the Twenty-First Supplemental Indenture (collectively, the “Third Lien Indenture”), to which reference is made for a complete statement of the provisions and contents of each of such documents. Certain words and terms used in this summary are defined in Appendix A – Glossary of Terms. This summary should be read as applying, independently, to each series of Variable Rate Series 2005 Bonds.

Authorization of Third Lien Obligations and Bonds

In order to provide sufficient funds for the financing or refinancing of Airport Projects, Third Lien Obligations are authorized by the Master Indenture to be issued from time to time in one or more Series, without limitation as to amount except as may be limited by law, for the purpose of (a) the payment, or the reimbursement for the payment of, the costs of one or more Airport Projects, (b) the refunding of any First Lien Bonds, Second Lien Obligations, Third Lien Obligations or other obligations issued to finance or refinance one or more Airport Projects, including, but not limited to, the refunding of any Special Facility Revenue Bonds and any Junior Lien Obligations, or (c) the funding of any Fund or Account (as defined in the General Airport Revenue Bond Ordinance), any Fund or Account (as specified in the Second Lien Indenture or the Second Lien Supplemental Indenture under which any Second Lien Obligations are issued), or any Fund or Account as specified in the Master Indenture or the Supplemental Indenture under which any Third Lien Obligations are issued; including, in each case, payment of Costs of Issuance. Third Lien Obligations consisting of Third Lien Section 208 Obligations and Qualified Third Lien Swap Agreements are also authorized to be incurred from time to time as provided for in the Master Indenture for the purposes set forth therein. The Variable Rate Series 2005 Bonds are Third Lien Obligations authorized and issued pursuant to the Third Lien Indenture.

The City reserves the right in the Master Indenture to provide one or more irrevocable letters of credit to secure the payment of the principal of, premium, if any, and interest on one or more Series of Third Lien Obligations, and if the Owners of those Third Lien Obligations have the right to require their purchase, to secure the payment of the purchase price of those Third Lien Obligations upon the demand of their Owners through one or more letters of credit or bond purchase agreements. In connection therewith, the City may agree to reimburse the issuer of the letter of credit or provider of a bond purchase agreement and any such obligation of the City may constitute a Third Lien Obligation.

Source of Payment; Pledge of Third Lien Revenues and Other Moneys

The Third Lien Indenture provides that the Third Lien Obligations are legal, valid and binding limited obligations of the City payable solely from Third Lien Revenues and certain other moneys and securities held by the Trustee under the provisions of the Master Indenture and any Supplemental Indenture. The Third Lien Obligations and the interest thereon do not constitute an indebtedness or a loan of credit of the City within the meaning of any constitutional or statutory limitation, and neither the faith and credit nor the taxing power of the City, the State of Illinois or any of its political subdivisions is pledged to the payment of the principal of or interest on the Third Lien Obligations. The City makes a pledge of the Trust Estate, to the extent set forth in the Granting Clauses of the Master Indenture, and of all moneys and securities held or set aside or to be held or set aside by the Trustee under the Master Indenture or any Supplemental Indenture, to secure the payment of the principal and Redemption Price of,

B-2

and interest on, the Third Lien Obligations, subject only to the provisions of the Master Indenture or any Supplemental Indenture requiring or permitting the payment, setting apart or appropriation of such moneys and securities for or to the purposes and on the terms, conditions, priorities and order set forth in or provided under the Master Indenture or any Supplemental Indenture. Such pledge is valid and binding from and after the date of issuance of any Third Lien Obligations under the Master Indenture; the Junior Lien Revenues and Third Lien Revenues so pledged and then or thereafter received by the City and deposited in the Third Lien Revenue Fund are immediately upon that deposit subject to the lien of the pledge without any further physical delivery or further act; and the lien of the pledge is valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the City, irrespective of whether the parties have notice of it.

Payment of Debt Service on the Third Lien Obligations

The Master Indenture creates the Third Lien Revenue Fund to be held and administered by the Trustee. The City has agreed to cause to be filed with the First Lien Trustee, contemporaneously with the issuance of each series of Third Lien Obligations, a certificate stating the dates on which amounts on deposit in the Junior Lien Obligation Debt Service Fund are to be withdrawn therefrom by the First Lien Trustee and paid to the Trustee, and the amounts of such withdrawals, and containing a direction of the City to the First Lien Trustee to withdraw from the Junior Lien Obligation Debt Service Fund and pay to the Trustee the amounts, and on the dates, specified in such certificate, subject only to the prior pledge of Junior Lien Revenues in accordance with the Second Lien Indenture and any instrument creating Second Lien-Related Obligations. Upon receipt of such payments the Trustee shall deposit the same in the Third Lien Revenue Fund. The moneys in the Third Lien Revenue Fund shall be disbursed and applied by the Trustee as required by the provisions of any supplemental indenture creating a series of Third Lien Obligations, or by any instrument creating Third Lien Obligations. The Trustee shall segregate within the Third Lien Revenue Fund and credit to such sub-funds, accounts and sub-accounts therein as may have been created for the benefit of such series and such Third Lien Obligations in such supplemental indenture such amounts as may be required to be so credited under the provisions of such supplemental indenture or instrument creating Third Lien Obligations to pay the principal of and interest on such Third Lien Obligations.

Each Supplemental Indenture relating to a series of the Variable Rate Series 2005 Bonds creates and establishes with the Trustee a separate and segregated sub-fund within the Third Lien Revenue Fund (each a “Series 2005 Dedicated Sub-Fund”). Moneys on deposit in each such Series 2005 Dedicated Sub-Fund and in each account and sub-account established therein are to be held in trust by the Trustee for the sole and exclusive benefit of the Registered Owners of the related series of Variable Rate Series 2005 Bonds and are not to be used or available for the payment of any other Third Lien Obligations. Each Supplemental Indenture relating to the Variable Rate Series 2005 Bonds creates within the related Series 2005 Dedicated Sub-Fund the following separate accounts: (a) a Project Account; (b) a Capitalized Interest Account; (c) a Costs of Issuance Account; (d) a Program Fee Account; (e) a Principal and Interest Account; and (f) a Bond Purchase Account. On January 1 and July 1 of each year, commencing July 1, 2006 (each such date referred to herein as the “Deposit Date”), there shall be deposited into the related Series 2005 Dedicated Sub-Fund from amounts on deposit in the Third Lien Revenue Fund an amount equal to the aggregate of the following amounts, which amounts shall have been calculated by the Trustee on the next preceding December 5 or June 5 (in the case of each January 1 or July 1, respectively) (such aggregate amount with respect to any Deposit Date being referred to herein as the “2005 Deposit Requirement”):

(a) (i) commencing with the July 1 next preceding the first principal payment date or sinking fund payment date, one-half of the Principal Installment coming due on the Variable Rate Series 2005 Bonds on the January 1 next succeeding such date of calculation, and (ii)

B-3

commencing July 1, 2006, the amount projected to be required as of the applicable Deposit Date to restore the Principal and Interest Account to an amount equal to the Principal and Interest Account Requirement; and

(b) for deposit into the Program Fee Account, the amount estimated by the City to be required as of the close of business on such Deposit Date to pay all fees and expenses with respect to the related series of the Variable Rate Series 2005 Bonds during the semi-annual period commencing on such Deposit Date.

In addition to the 2005 Deposit Requirement, there will be deposited into the related Series 2005 Dedicated Sub-Fund any other moneys received by the Trustee under and pursuant to the Master Indenture or the related Supplemental Indenture, when accompanied by directions from the person depositing such moneys that such moneys are to be paid into such Series 2005 Dedicated Sub-Fund and to one or more accounts therein.

Moneys in the Principal and Interest Account will be used solely for the payment of the principal of and interest on the related series of the Variable Rate Series 2005 Bonds, for the redemption of the related series of the Variable Rate Series 2005 Bonds prior to maturity and for the payment of any Third Lien Section 208 Obligations. Moneys deposited into the Program Fee Account will be used solely for the payment of fees and expenses with respect to the Variable Rate Series 2005 Bonds as set forth in a certificate filed with the Trustee.

Moneys in the Common Debt Service Reserve Account or any separate series debt service reserve account (except for any moneys therein representing investment income required to be paid to the First Lien Trustee) will be used solely for the payment of principal, premium, if any, and interest due on each Payment Date and not otherwise provided for with respect to the Common Reserve Bonds or Non-Common Reserve Bonds for which such account was established, respectively (and for the payment of any Third Lien Section 208 Obligations) without preference or priority of any Common Reserve Bond or Non-Common Reserve Bonds, respectively. See “SECURITY FOR THE VARIABLE RATE SERIES 2005 BONDS – Debt Service Reserve Accounts” in this Official Statement.

Bond Purchase Account

The Tender Agent will maintain, with respect to each series of Variable Rate Series 2005 Bonds, the Bond Purchase Account, and the Subaccounts thereof, as agent of the Trustee as separate trust accounts.

(a) Remarketing Subaccount. Upon receipt of the proceeds of a remarketing of a series of Variable Rate Series 2005 Bonds on a Tender Date from proceeds of sale, the Tender Agent will deposit such proceeds in the Remarketing Subaccount of the Bond Purchase Account for application to the Tender Price of such series of Variable Rate Series 2005 Bonds and, if the Tender Agent is not a paying agent with respect to such series of Variable Rate Series 2005 Bonds, will transmit such proceeds to the Trustee for such application. Notwithstanding the foregoing, upon receipt of the proceeds of a remarketing of related Bank Bonds, the Tender Agent will immediately pay such proceeds to the related Liquidity Facility Provider.

(b) Liquidity Facility Purchase Subaccount. Upon receipt from the related Liquidity Facility Provider of the immediately available funds transferred to the Tender Agent from a draw on the related Liquidity Facility, the Tender Agent will deposit such money in the related Liquidity Facility Purchase Subaccount of the Bond Purchase Account for application to the Tender Price of the series of Variable Rate Series 2005 Bonds required to be purchased on a

B-4

Tender Date to the extent that the money on deposit in the related Remarketing Subaccount of the Bond Purchase Account shall not be sufficient. Any amounts deposited in the related Liquidity Facility Purchase Subaccount and not needed with respect to any Tender Date for the payment of the Tender Price for any series of Variable Rate Series 2005 Bonds will be immediately returned to the related Liquidity Facility Provider.

(c) City Purchase Subaccount. Upon receipt from the City of any funds for the purchase of tendered Variable Rate Series 2005 Bonds of a series, the Tender Agent will deposit such money, if any, in the City Purchase Subaccount of the Bond Purchase Account for application to the related Tender Price of the series of Variable Rate Series 2005 Bonds required to be purchased on a Tender Date to the extent that the money on deposit in the Remarketing Subaccount and the Liquidity Facility Purchase Subaccount of the Bond Purchase Account shall not be sufficient. Any amounts deposited in the related City Purchase Subaccount and not needed with respect to any Tender Date for the payment of the Tender Price for any series of Variable Rate Series 2005 Bonds will be immediately returned to the City.

Alternate Liquidity Facility

(a) Delivery by City.

(i) Prior to the expiration or termination of a Liquidity Facility relating to a series of Variable Rate Series 2005 Bonds, in accordance with the terms of that Liquidity Facility and upon the written consent of the related Bond Insurer and payment to the Liquidity Facility Provider of all amounts owing under the Liquidity Facility, the City may provide for the delivery to the Tender Agent of an Alternate Liquidity Facility which has a term of at least 364 days (or, if the Variable Rate Series 2005 Bonds mature prior to the end of such 364-day period, has a term expiring no earlier than the maturity date of the Variable Rate Series 2005 Bonds). Any Alternate Liquidity Facility delivered to the Tender Agent pursuant to this Section shall be delivered and become effective not later than 10 days prior to the date on which the former Liquidity Facility terminates or expires and will contain administrative provisions reasonably acceptable to the Tender Agent, the Remarketing Agent and the related Bond Insurer. On or prior to the date of the delivery of an Alternate Liquidity Facility to the Tender Agent, the City will furnish to the Tender Agent (A) if the Alternate Liquidity Facility is issued by a Liquidity Facility Provider other than a domestic commercial bank, a Counsel’s Opinion reasonably satisfactory to the City, the Tender Agent, the Remarketing Agent (if any) and the related Bond Insurer that no registration of such Alternate Liquidity Facility is required under the Securities Act, and no qualification of the Third Lien Indenture is required under the Trust Indenture Act, or that all applicable registration or qualification requirements have been fulfilled, and (B) a Counsel’s Opinion satisfactory to the City, the Tender Agent, the Remarketing Agent and the related Bond Insurer to the effect that such Alternate Liquidity Facility is a valid and enforceable obligation of the issuer thereof.

(ii) In lieu of the Counsel’s Opinion required by clause (A) of subparagraph (i) above, there may be delivered a Counsel’s Opinion reasonably satisfactory to the City the Remarketing Agent, the Tender Agent and the related Bond Insurer to the effect that either (A) at all times during the term of the Alternate Liquidity Facility, the series of Variable Rate Series 2005 Bonds will be offered, sold and held by holders in transactions not constituting a public offering of such Variable Rate Series 2005 Bonds or such Alternate Liquidity Facility under the Securities Act, and accordingly no registration under the Securities Act, nor qualification of the Third Lien Indenture under the Trust

B-5

Indenture Act, will be required in connection with the issuance and delivery of such Alternate Liquidity Facility or the remarketing of such Variable Rate Series 2005 Bonds with the benefits thereof, or (B) the offering and sale of such Variable Rate Series 2005 Bonds, to the extent evidencing such Alternate Liquidity Facility, has been registered under the Securities Act and any indenture required to be qualified with respect thereto under the Trust Indenture Act has been so qualified. If the opinion described in clause (A) of this subparagraph (ii) is given, the Variable Rate Series 2005 Bonds and any transfer records relating to the Variable Rate Series 2005 Bonds will be noted indicating the restrictions on sale and transferability described in clause (A).

(b) Delivery upon Rating Downgrade. In the event that a Liquidity Facility Provider is downgraded below the top two short-term ratings by S&P or the highest short-term rating by Moody’s (to the extent such rating agency is then rating such Liquidity Facility Provider), the City may, and at the direction of the related Bond Insurer will, provide for delivery of an Alternate Liquidity Facility acceptable to such Bond Insurer. Any Alternate Liquidity Facility delivered to the Tender Agent pursuant to this subparagraph will contain administrative provisions reasonably acceptable to the Tender Agent and the Remarketing Agent:

(c) Acceptance by Tender Agent. If at any time there is delivered to the Tender Agent (i) an Alternate Liquidity Facility covering all of the Variable Rate Bonds of a series, (ii) the information, opinions and data required as described above, and (iii) all information required to give the notice of mandatory tender for purchase of the Variable Rate Series 2005 Bonds of a series, then the Tender Agent will accept such Alternate Liquidity Facility and, after the date of the mandatory tender for purchase established pursuant to the Third Lien Indenture, promptly surrender the Liquidity Facility then in effect to the issuer thereof for cancellation in accordance with its terms or deliver any document necessary to reduce the coverage of such Liquidity Facility due to the delivery of such Alternate Liquidity Facility.

(d) Notice of Termination. The Trustee will give notice to the Tender Agent, the Remarketing Agent, the related Bond Insurer and the holders of the related series of Variable Rate Series 2005 Bonds of the termination or expiration of any Liquidity Facility in accordance with its terms as provided in the Third Lien Indenture.

Coverage Covenants

(a) The City covenants that it will fix and establish, and revise from time to time whenever necessary, the rentals, rates and other charges for the use and operation of the Airport and for services rendered by the City in the operation of it in order that Revenues in each Fiscal Year, together with Other Available Moneys deposited with the Trustee with respect to that Fiscal Year and any cash balance held in the Revenue Fund on the first day of that Fiscal Year not then required to be deposited in any Fund or Account, will be at least sufficient:


(ii) to provide for the greater of (A) the sum of the amounts needed to make the deposits required to be made pursuant to all resolutions, ordinances, indentures and trust agreements pursuant to which all outstanding First Lien Bonds, Second Lien Obligations, Third Lien Obligations or other Airport Obligations are issued and secured, and (B) one and ten-hundredths times Aggregate First, Second and Third Lien Debt Service for the Bond Year commencing during that Fiscal Year, reduced by any proceeds

B-6

of Airport Obligations held by the Trustee for disbursement during that Bond Year to pay principal of and interest on First Lien Bonds, Second Lien Obligations or Third Lien Obligations.

(b) The City further covenants that it will fix and establish, and revise from time to time whenever necessary, the rentals, rates and other charges for the use and operation of the Airport and for services rendered by the City in the operation of it in order that Revenues in each Fiscal Year, together with Other Available Moneys consisting solely of (i) any passenger facility charges deposited with the Trustee for that Fiscal Year, and (ii) any other moneys received by the City in the immediately prior Fiscal Year and deposited with the Trustee no later than the last day of the immediately prior Fiscal Year, will be at least sufficient:

(i) to provide for the payment of Operation and Maintenance Expenses for the Fiscal Year, and

(ii) to provide for the payment of Aggregate First, Second and Third Lien Debt Service for the Bond Year commencing during that Fiscal Year reduced by any proceeds of Airport Obligations held by the Trustee for disbursement during the Bond Year to pay the principal of and interest on First Lien Bonds, Second Lien Obligations or Third Lien Obligations.

(c) If during any Fiscal Year, Revenues and other funds are estimated to produce less than the amount required under paragraph (a) or (b), the City shall revise its Airport rentals, fees and charges or alter its methods of operation or take other action in such manner as is necessary to produce the amount so required in such Fiscal Year.

(d) Within 90 days after the end of each Fiscal Year, the City shall furnish to the Trustee calculations of the coverage required under paragraphs (a) and (b) certified by the City Comptroller.

(e) If either calculation specified in paragraph (d) for any Fiscal Year indicates that the City has not satisfied its obligations under paragraph (a) or (b), then as soon as practicable, but in any event no later than 45 days after the receipt by the Trustee of such calculation, the City shall employ an Independent Airport Consultant to review and analyze the financial status and the administration and operation of the Airport and to submit to the City, within 45 days after employment of the Independent Airport Consultant, a written report on the same, including the action which the Independent Airport Consultant recommends should be taken by the City with respect to the revision of its Airport rentals, fees and charges, alteration of its methods of operation or the taking of other action that is projected to result in producing the amount so required in the then current Fiscal Year or, if less, the maximum amount deemed feasible by the Independent Airport Consultant. Within 60 days following its receipt of the recommendations the City shall, after giving due consideration to the recommendations, revise its Airport rentals, fees and charges or alter its methods of operation, which revisions or alterations need not comply with the Independent Airport Consultant’s recommendations so long as any revisions or alterations are projected by the City to result in compliance with paragraphs (a) and (b) above. The City shall transmit copies of the Independent Airport Consultant’s recommendations to the Trustee and to each Owner who has requested the same.

(f) If at any time and as long as the City is in full compliance with the provisions of paragraphs (c), (d) and (e), there shall be no Event of Default under the Master Indenture as a

B-7

consequence of the City’s failure to satisfy the covenants contained in paragraphs (a) or (b) during such period.

(g) If all or any portion of an Outstanding series of Third Lien Obligations constitute Balloon Maturities, then for purposes of determining Annual Third Lien Debt Service each maturity that constitutes a Balloon Maturity shall, unless otherwise provided in the Supplemental Indenture pursuant to which such Third Lien Obligations are authorized or unless paragraph (h) then applies to such maturity, be treated as if it were amortized over a term of not more than 30 years and with substantially level annual debt service funding payments commencing not later than the year following the year in which the indebtedness that includes such Balloon Maturity was originally issued and extending not later than 30 years from the date the indebtedness that includes such Balloon Maturity was originally issued; the interest rate used for such computation shall be that rate quoted in the Bond Buyer 25 Revenue Bond Index for the last week of the month preceding the date of calculation as published by the Bond Buyer, or if that index is no longer published, another similar index designated by an Authorized Officer, taking into consideration whether such Third Lien Obligations bear interest which is or is not excluded from gross income for federal income tax purposes;

(h) Any maturity of Third Lien Obligations that constitutes a Balloon Maturity as described in paragraph (g), and for which the stated maturity date occurs within 12 months from the date such calculation of Annual Third Lien Debt Service is made, shall be assumed to become due and payable on the stated maturity date, and paragraph (g) above shall not apply thereto, unless there is delivered to the entity making the calculation of Annual Third Lien Debt Service a Certificate of the City stating (i) that the City intends to refinance such maturity, (ii) the probable terms of such refinancing and (iii) that the debt capacity of the Airport is sufficient to successfully complete such refinancing; upon the receipt of such Certificate, such Balloon Maturity shall be assumed to be refinanced in accordance with the probable terms set out in such Certificate and such terms shall be used for purposes of calculating Annual Third Lien Debt Service; provided that such assumption shall not result in an interest rate lower than that which would be assumed under paragraph (g) above and shall be amortized over a term of not more than 30 years from the expected date of refinancing.

Covenant Against Pledge of Revenues

The City covenants not to issue any bonds, notes or other evidences of indebtedness secured by the pledge contained in the Master Indenture, other than Third Lien Obligations, and covenants not to create or cause to be created any lien or charge on Revenues, or on any amounts pledged for the benefit of Owners of Third Lien Obligations under the Master Indenture, other than the pledge contained in the Master Indenture, in the Second Lien Indenture, and in the General Airport Revenue Bond Ordinance; provided, however, that the Master Indenture does not prevent the City (a) from issuing bonds, notes or other evidences of indebtedness payable out of, or secured by a pledge of, Revenues to be derived on and after the date of the pledge contained in the Master Indenture is discharged and satisfied as provided therein, or (b) from issuing bonds, notes or other evidences of indebtedness (including bonds, notes or other evidences of indebtedness evidencing loans made by the City to the Airport) which are payable out of, or secured by, the pledge of amounts which may be withdrawn from the Junior Lien Obligation Debt Service Fund so long as the pledge is expressly junior and subordinate to the pledge contained in the Master Indenture, including, but not limited to, CP Notes without limit as to nature or amount, pursuant to one or more CP Indentures.

B-8

Insurance

The City covenants to maintain, or cause to be maintained, insurance with respect to the Airport against casualties and contingencies and in amounts not less than the City determines are reasonably prudent under the circumstances. In lieu of the insurance so required, the City may self-insure against any casualties and contingencies if determined by the City to be reasonably prudent to do so.

If the Airport, or any portion of it, is substantially damaged or destroyed by fire or other casualty, the City covenants to deposit with the First Lien Trustee the net proceeds of any insurance received with respect thereto for application by the First Lien Trustee in the manner provided in the General Airport Revenue Bond Ordinance or, if no First Lien Bonds are outstanding, as may be required under the Second Lien Indenture or any resolution, ordinance, indenture or trust agreement adopted or entered into pursuant to the Master Indenture.

Annual Audit

The City covenants that it will, within 210 days after the close of each Fiscal Year, furnish the Trustee with a copy of an annual audit report, prepared in accordance with generally accepted accounting principles and certified by an Independent Accountant, covering the operation of the Airport for the Fiscal Year. The audit must contain a calculation based on actual data enabling the Independent Accountant to certify that the coverage covenants described above have been satisfied with respect to that Fiscal Year.

Restrictions on Sale or Transfer of Airport

(a) The sale, conveyance, mortgage, encumbrance or other disposition, directly or indirectly, of all or substantially all of the Airport or the transfer, directly or indirectly, of control, management or oversight, or any material aspect of control, management or oversight, of the Airport, whether of its properties, interests, operations, expenditures, revenues (including, without limit, Revenues, Junior Lien Revenues or the proceeds of any passenger facility charge or similar charge) or otherwise (any of the foregoing being referred to for this purpose as a “transfer”) shall not occur unless and until all of the following conditions shall have been met:

(i) such transfer shall have been approved in writing by the Mayor of the City and by the City Council at a meeting duly called for such purpose;

(ii) evidence shall have been obtained in writing confirming that such transfer shall not adversely affect any rating on Third Lien Obligations issued by any Rating Agency;

(iii) a Certificate shall have been received from an Independent Airport Consultant, certifying that, in each calendar year during the five-year period commencing after the calendar year in which such transfer occurs, Revenues together with any cash balance held in the Revenue Fund held under the General Airport Revenue Bond Ordinance on the first day of such calendar year not then required to be deposited in any fund or account (or subaccount thereof) other than the Revenue Fund held under the General Airport Revenue Bond Ordinance, and investment earnings for each such calendar year on moneys held in the funds and accounts held pursuant to the Master Indenture to the extent that such earnings are not required by the Master Indenture to be transferred to any Construction Fund, shall equal an amount not less than the amount required to satisfy the coverage covenant described under the caption “Coverage Covenants” above; provided, however, for purposes of the Certificate “one and

B-9

fifty-hundredths times” shall be substituted for “one and ten-hundredths times” in paragraph (a)(ii)(B) under said caption;

(iv) written consent to such transfer shall have been received from the Owners of all Airport Obligations then Outstanding;

(v) written consent to such transfer shall have been received from the Trustee;

(vi) written consent to such transfer shall have been received from each bond insurer and each provider of any letter of credit or surety bond supporting Airport Obligations;

(vii) written consent to such transfer shall have been received from the Chicago-Gary Regional Airport Authority pursuant to Section 10-20 of the Compact Between the City and the City of Gary dated April 15, 1995 Relating to the Establishment of the Chicago-Gary Regional Airport Authority; and

(viii) there shall be deposited with the Trustee for the benefit of the Owners of all then outstanding Airport Obligations a letter of credit, surety bond or Qualified Investments in the full amount of the then outstanding Airport Obligations, such letter of credit or surety bond to have a credit rating of not less than either of the two highest rating categories by each Rating Agency; provided, however, that no revenues (including, without limit, Revenues, Junior Lien Revenues or the proceeds of any passenger facility charge or similar charge) shall be pledged, or in any way used, to secure any such letter of credit or surety bond.

(b) For purposes of paragraph (c) under the caption “Events of Default” below, the performance of this covenant shall be deemed to be material to the Owners of Third Lien Obligations.

Additional Second Lien Obligations

The City covenants and agrees not to issue any additional Second Lien Obligations pursuant to the Second Lien Indenture other than Second Lien Section 208 Obligations, Second Lien-Related Obligations (as described under the caption below) and Second Lien Obligations issued for the purpose of refunding Second Lien Obligations pursuant to the Second Lien Indenture (including applicable reserves and costs of issuance).

Additional Second Lien-Related Obligations

The City reserves the right to incur Second Lien-Related Obligations without limitation as to nature or amount payable from Junior Lien Revenues on a parity with or subordinate to outstanding Second Lien Obligations and prior and superior to Third Lien Obligations. No Second Lien-Related Obligation may be incurred unless each Rating Agency shall confirm that the incurrence thereof will not cause a reduction or withdrawal by the Rating Agency of its rating on Outstanding Third Lien Obligations.

B-10

Additional First Lien Bonds

The City reserves the right to covenant and agree in a Supplemental Indenture for the benefit of Owners of Third Lien Obligations not to issue any additional First Lien Bonds pursuant to the General Airport Revenue Bond Ordinance other than First Lien Bonds issued for the purpose of refunding First Lien Bonds pursuant to the General Airport Revenue Bond Ordinance (including applicable reserves and costs of issuance).

Completion Bonds

Completion Bonds are authorized by the Master Indenture to be issued to finance the costs of one or more Airport Projects initially financed in whole or in part by Airport Obligations. In connection with the issuance of Completion Bonds, the City must deliver to the Trustee Certificates stating, among other things, (i) that the additional cost of the Airport Projects being financed does not exceed 15 percent of their aggregate cost previously financed by Airport Obligations, (ii) that the revised aggregate cost of those Airport Projects cannot be paid with moneys available and (iii) that the issuance of Completion Bonds is necessary to provide funds to complete the Airport Projects.

Refunding Bonds

Refunding Bonds are authorized by the Master Indenture to be issued for the purpose of the refunding of Airport Obligations. In connection with the issuance of Refunding Bonds under Section 207 of the Master Indenture, the City must deliver to the Trustee either any certificate described in the Official Statement under the caption “SECURITY FOR THE VARIABLE RATE SERIES 2005 BONDS – Issuance of Additional Third Lien Bonds” or a Certificate of the City stating that giving effect to the refunding the issuance of the Refunding Bonds will result in (i) a net present value debt service savings to the City, or (ii) a reduction in annual debt service in each Bond Year that debt service is payable on the Airport Obligations to be refunded.

Management of Airport

The City covenants that in order to assure the efficient management and operation of the Airport and to assure the Owners of the Third Lien Obligations that the Airport will be economically and efficiently operated on the basis of sound business principles, it will operate and maintain the Airport under the direction of the Commissioner of Aviation. The City will not take, or allow any other person to take, any action which would cause the Administrator of the FAA, Department of Transportation, or any successor to the powers and authority of the Administrator, to suspend or revoke the Airport’s airport operating certificate issued under the Federal Aviation Act of 1958, or any successor statute. The City will comply with all valid acts, rules, regulations, orders and directives of any governmental, legislative, executive, administrative or judicial body applicable to the Airport, unless the City contests them in good faith, all to the end that the Airport will remain operational at all times.

Operation and Maintenance of Airport

The City covenants that it will use its best efforts to see that the Airport is at all times operated and maintained in an efficient operating condition; and such repairs are made to the Airport as are necessary or appropriate in the prudent management of the Airport to insure its economic and efficient operation at all times. The City covenants to cause all rentals, rates and other charges for the use and operation of the Airport and for certain services rendered by the City in the operation of the Airport to be collected when and as due and covenants to prescribe and enforce rules and regulations for their payment and for the consequences of their nonpayment. The City covenants, out of Revenues, from time to time,

B-11

duly to pay and discharge, or cause to be paid and discharged, any taxes, assessments or other governmental charges lawfully imposed upon the Airport or upon any part of it, or upon the Revenues, when they become due, as well as any lawful claim for labor, materials, or supplies which, if unpaid, might by law become a lien or charge upon the Airport, or which might impair the security of the Third Lien Obligations.

Maintenance of Powers

The City covenants that it will at all times use reasonable efforts to keep the Airport open for landings and takeoffs of aircraft of any type using facilities similar to those at the Airport and to maintain the powers, functions, duties and obligations now reposed in it pursuant to law, and will not at any time voluntarily do, suffer or permit any act or thing the effect of which would be to hinder, delay or imperil either the payment of the indebtedness evidenced by any of the Third Lien Obligations or the performance or observance of any of the covenants contained in the Master Indenture.

Airport Budget

The City must prepare before the beginning of each Fiscal Year an annual budget for the Airport setting forth for that Fiscal Year in reasonable detail, among other things, estimated Revenues and Operation and Maintenance Expenses. The budget must be prepared in accordance with applicable law and must be made available to the City Council in sufficient time for it to act thereon as required by law.

Leases and Concessions

The City has the right for any term of years to let to any person, firm or corporation, or grant concessions or privileges in, any land of the Airport or any building or structure on the land for any purpose necessary or incidental to the operation of the Airport.

Special Facility Revenue Bonds

The City reserves the right to issue Special Facility Revenue Bonds, which must be revenue bonds payable solely from rentals or other amounts derived under and pursuant to a Special Facility Financing Arrangement, and may be issued by the City notwithstanding the limitations, restrictions and conditions contained in the Master Indenture relating to the issuance of Third Lien Obligations.

Supplemental Indentures Effective Upon Execution by the Trustee

For any one or more of the following purposes and at any time or from time to time, a Supplemental Indenture may be authorized by an ordinance adopted by the City Council, which, upon the filing with the Trustee of a copy of the ordinance certified by the City Clerk and the execution and delivery of the Supplemental Indenture by the City and the Trustee, is fully effective in accordance with its terms:

(a) to close the Master Indenture against, or provide limitations and restrictions in addition to the limitations and restrictions contained in the Master Indenture on, the issuance or incurrence of Third Lien Obligations or other evidences of indebtedness;

(b) to add to the covenants and agreements of the City in the Master Indenture other covenants and agreements to be observed by the City which are not contrary to or inconsistent with the Master Indenture as theretofore in effect;

B-12

(c) to add to the limitations and restrictions in the Master Indenture other limitations and restrictions to be observed by the City which are not contrary to or inconsistent with the Master Indenture as theretofore in effect;

(d) to surrender any right, power or privilege reserved to or conferred upon the City by the terms of the Master Indenture, but only if the surrender of the right, power or privilege is not contrary to or inconsistent with the covenants and agreements of the City contained in the Master Indenture;

(e) to create a Series of Third Lien Obligations and, in connection therewith, to specify and determine the matters and things referred to in the Master Indenture and also any other matters and things relative to the Third Lien Obligations which are not contrary to or inconsistent with the Master Indenture as theretofore in effect, or to amend, modify or rescind any such authorization, specification or determination at any time before the first issuance of the Third Lien Obligations;

(f) to confirm, as further assurance, the pledge under the Master Indenture, and the subjection of additional revenues, properties and collateral to any lien, claim or pledge created or to be created by the Master Indenture;

(g) to effect the provisions of the Master Indenture relating to the issuance of additional First Lien Bonds; and

(h) to modify any of the provisions of the Master Indenture in any respect whatever, but only if (i) the modification is, and is expressed to be, effective only after all Third Lien Obligations Outstanding at the date of the execution and delivery of the Supplemental Indenture cease to be Outstanding, and (ii) the Supplemental Indenture is specifically referred to in the text of all Third Lien Obligations issued after the date of the execution and delivery of the Supplemental Indenture and of Third Lien Obligations issued in exchange therefor or in place of it.

Supplemental Indentures Effective Upon Consent of Trustee

(a) For any one or more of the following purposes and at any time or from time to time, a Supplemental Indenture may be authorized by an ordinance adopted by the City Council which, upon (i) the filing with the Trustee of a copy of the ordinance certified by the City Clerk, (ii) the filing with the Trustee and the City of an instrument in writing made by the Trustee consenting thereto and (iii) the execution and delivery of the Supplemental Indenture by the City and the Trustee, is fully effective in accordance with its terms:

(i) to cure any ambiguity, supply any omission, or cure or correct any defect or inconsistent provision in the Master Indenture;

(ii) to insert such provisions clarifying matters or questions arising under the Master Indenture as are necessary or desirable and are not contrary to or inconsistent with the Master Indenture as theretofore in effect; or

(iii) to provide additional duties of the Trustee under the Master Indenture.

(b) Any such Supplemental Indenture may also contain one or more of the purposes specified in the immediately preceding caption, and in that event, the consent of the Trustee under

B-13

this caption is applicable only to those provisions of such Supplemental Indenture as contain one or more of the purposes set forth in paragraph (a) under this caption.

Supplemental Indentures Effective With Consent of Owners of Third Lien Obligations

At any time or from time to time, a Supplemental Indenture may be authorized by an ordinance adopted by the City Council, subject to consent by the Owners of Third Lien Obligations in accordance with and subject to the amendment provisions of the Master Indenture, which Supplemental Indenture, upon the filing with the Trustee of a copy of the ordinance certified by the City Clerk, upon compliance with the provisions of the Master Indenture relating to amendments, and upon execution and delivery of the Supplemental Indenture by the City and the Trustee, becomes fully effective in accordance with its terms.

Powers of Amendment

(a) Subject to the provisions of paragraph (b) below, any modification or amendment of the Master Indenture or of any Supplemental Indenture, or of the rights and obligations of the City and of the Owners of the Third Lien Obligations, in particular, may be made by a Supplemental Indenture, with the written consent given as described under the Master Indenture:

(i) of the Owners of more than 50 percent in principal amount of the Third Lien Obligations Outstanding at the time the consent is given;

(ii) in case less than all of the several Series of then Outstanding Series of Third Lien Obligations are affected by the modification or amendment, of the Owners of more than 50 percent in principal amount of the then Outstanding Third Lien Obligations of each Series so affected; and

(iii) in case the modification or amendment changes the terms of any Sinking Fund Payment, of the holders of more than 50 percent in principal amount of the then Outstanding Third Lien Obligations of the particular Series and maturity entitled to the Sinking Fund Payment, but only if permitted under paragraph (b) below.

(b) If the modification or amendment will, by its terms, not take effect so long as any Third Lien Obligations of any specified like Series and maturity remain Outstanding, the consent of the Owners of those Third Lien Obligations are not required and those Third Lien Obligations are not deemed to be Outstanding for the purpose of any calculation of Outstanding Third Lien Obligations under this caption. No such modification or amendment may permit a change in the terms of redemption or maturity of the principal of any Outstanding Third Lien Obligation (including any redemption as a result of Sinking Fund Payments) or of any installment of interest on it or a reduction in the principal amount or its Redemption Price or in the rate of interest on it without the consent of the Owner of the Third Lien Obligation, or may reduce the percentages or otherwise affect the classes of Third Lien Obligations the consent of the Owners of which is required to effect any such modification or amendment, or may change or modify any of the rights or obligations of any Fiduciary without its written assent to the change or modification. For the purposes of this caption, a Series is deemed to be affected by a modification or amendment of the Master Indenture if it adversely affects or diminishes the rights of the Owners of Third Lien Obligations of the Series. The Trustee may in its discretion determine whether or not in accordance with the foregoing powers of amendment Third Lien Obligations of any particular Series or maturity would be affected by any modification or amendment of the Master

B-14

Indenture, and any such determination is binding and conclusive on the City and all Owners of Third Lien Obligations.

Events of Default

Each of the following events of default is hereby declared an “Event of Default”:

(a) payment of the principal or Redemption Price, if any, of any Third Lien Obligation is not made when and as it becomes due, whether at maturity or upon call for redemption or otherwise;

(b) payment of any installment of interest on any Third Lien Obligation is not made when it becomes due;

(c) the City fails or refuses to comply with the provisions of the Master Indenture, or defaults in the performance or observance of any the covenants, agreements or conditions on its part contained in the Master Indenture or the Third Lien Obligations, which materially affects the rights of the Owners of the Third Lien Obligations and the failure, refusal or default continues for a period of 45 days after written notice of it by the Trustee or the Owners of not less than 25 percent in principal amount of the Outstanding Third Lien Obligations; provided, however, that in the case of any such default which can be cured by due diligence but which cannot be cured within the 45-day period, the time to cure is extended for such period as may be necessary to remedy the default with all due diligence; or

(d) an event of default occurs and is continuing under the provisions of any Supplemental Indenture (such events of default include, in the case of the Variable Rate Series 2005 Bonds, a failure to pay the purchase price of any tendered Variable Rate Series 2005 Bond, and receipt by the Trustee of written notice from the Liquidity Facility Provider that an event of default has occurred under the Liquidity Facility and that, as a result, the Liquidity Facility is being terminated pursuant to its terms by the Liquidity Facility Provider).

Remedies

(a) Upon the happening and continuance of any Event of Default specified in paragraph (a) or (b) of the immediately preceding caption, the Trustee must proceed, or upon the happening and continuance of any Event of Default specified in paragraph (c) or (d) of the immediately preceding caption, the Trustee may proceed, and upon the written request of the Owners of not less than 25 percent in principal amount of the Outstanding Third Lien Obligations, must proceed, in its own name, subject to the provisions of the Master Indenture, to protect and enforce its rights and the rights of the Owners of the Third Lien Obligations by such of the following remedies or any additional remedies specified in one or more Supplemental Indentures with respect to a particular Series as the Trustee, being advised by counsel, deems most effectual to protect and enforce such rights:

(i) by mandamus or other suit, action or proceeding at law or in equity, to enforce all rights of the Owners of the Third Lien Obligations, including the right to require the City to receive and collect Revenues adequate to carry out the covenants and agreements as to those Revenues and the pledge contained in the Master Indenture, and to require the City to carry out any other covenant or agreement with the Owners of the Third Lien Obligations and to perform its duties under the Master Indenture;

B-15

(ii) by bringing suit upon the Third Lien Obligations;

(iii) by action or suit in equity, require the City to account as if it were the trustee of any express trust for the Owners of the Third Lien Obligations; or

(iv) by action or suit in equity, enjoin any acts or things which may be unlawful or in violation of the rights of the Owners of the Third Lien Obligations.

(b) In the enforcement of any rights and remedies under the Master Indenture, the Trustee is entitled to sue for, enforce payment on and receive any and all amounts then or during any default becoming, and at any time remaining, due from the City, but only out of moneys pledged as security for the Third Lien Obligations for principal, Redemption Price, interest or otherwise, under any provision of the Master Indenture or any Supplemental Indenture or of the Third Lien Obligations, and unpaid, with interest on overdue payments at the rate or rates of interest specified in the Third Lien Obligations, together with any and all costs and expenses of collection and of all proceedings under the Master Indenture and under the Third Lien Obligations without prejudice to any other right or remedy of the Trustee or of the Owners of the Third Lien Obligations, and to recover and enforce a judgement or decree against the City for any portion of the amounts remaining unpaid, with interest, costs and expenses, and to collect from any moneys available under the Master Indenture for such purpose, in any manner provided by law, the moneys adjudged or decreed to be payable.

Defeasance

(a) If the City pays or causes to be paid to the Owners of all Third Lien Obligations the principal and interest and Redemption Price, if any, to become due thereon, at the times and in the manner stipulated in them, in the Master Indenture and the Supplemental Indentures and instruments creating Third Lien Obligations, then the pledge contained in the Master Indenture and all other rights granted thereby are discharged and satisfied. In that event, the Trustee must, upon the request of the City, execute and deliver to the City all such instruments as may be desirable to evidence the discharge and satisfaction and the Fiduciaries must pay over or deliver to the City all Accounts, Funds and other moneys or securities held by them pursuant to the Master Indenture and the Supplemental Indentures which are not required for payment or redemption of Third Lien Obligations not theretofore surrendered for payment or redemption.

(b) Third Lien Obligations or interest installments for the payment or redemption of which funds have been set aside and held in trust by Fiduciaries (through deposit by the City of moneys for the payment or redemption or otherwise) are, at the maturity or upon the date upon which the Third Lien Obligations have been duly called for their redemption, deemed to have been paid within the meaning and with the effect expressed in paragraph (a) of this caption. Third Lien Obligations are, before their maturity or redemption date, deemed to have been paid within the meaning and with the effect expressed in paragraph (a) of this caption if (i) in case any of the Third Lien Obligations are to be redeemed on any date before their maturity, the City has taken all action necessary to call the Third Lien Obligations for redemption and notice of the redemption has been duly given or provision satisfactory to the Trustee has been made for the giving of such notice, (ii) there have been deposited with the Trustee for that purpose either moneys in an amount which is sufficient, or Federal Obligations the principal of and the interest on which when due (without reinvestment) will provide moneys which, together with the moneys, if any, deposited with the Trustee at the same time, are sufficient, to pay when due the principal or Redemption Price, if any, and interest due and to become due on the Third Lien Obligations on and before their redemption date or maturity date, as the case may be, and (iii) if the Third Lien

B-16

Obligations are not by their terms subject to redemption within the next succeeding 45 days, the City has given the Trustee, in form satisfactory to it, irrevocable instructions to mail, as soon as practicable, a notice to the Owners of the Third Lien Obligations that the deposit required by clause (i) above has been made with the Trustee and that the Third Lien Obligations are deemed to have been paid in accordance with the Master Indenture, and stating the maturity or redemption date upon which moneys are to be available for the payment of the principal or Redemption Price, if any, of, and accrued interest on, the Third Lien Obligations.

Neither the Federal Obligations or moneys deposited with the Trustee pursuant to the Master Indenture nor principal or interest payments on any such Federal Obligations may be withdrawn or used for any purpose other than, and must be held in trust for, the payment of the principal or Redemption Price, if any, of and interest on the Third Lien Obligations; but any cash received from the principal or interest payments on the Federal Obligations deposited with the Trustee, if not then needed for the purpose, must, to the extent practicable, be reinvested in Federal Obligations maturing at times and in amounts sufficient to pay when due the principal or Redemption Price, if any, of, and interest due and to become due on, the Third Lien Obligations on and before their redemption date or maturity date, as the case may be, and interest earned from those reinvestments must be paid over to the City, as received by the Trustee, free and clear of any trust, assignment, lien or pledge.

(c) No defeasance of a Third Lien Obligation that is to be paid more than 45 days after the date of the deposit referred to in paragraph (b) (ii) above shall be effective until the Trustee shall have received a verification report signed by an Independent Accountant that the Federal Obligations and moneys to be deposited for such purpose are sufficient to pay the principal and Redemption Price of, and interest on, all bonds with respect to which provision for payment is to be made as described under this caption by virtue of the deposit of such Federal Obligations and moneys.

No Variable Rate Series 2005 Bonds may be treated as defeased and the indebtedness deemed discharged, for purposes of the Third Lien Indenture, prior to payment in accordance with the Third Lien Indenture without the provision of written evidence to the Trustee that each Rating Agency then rating the Variable Rate Series 2005 Bonds will not lower or withdraw its then-current ratings on the Variable Rate Series 2005 Bonds as a result of such defeasance and discharge.

Rights of the Bond Insurer

The issuer of a municipal bond insurance policy with respect to any Third Lien Obligations is deemed to be the sole Owner of the Third Lien Obligations for purposes of approving amendments to the Master Indenture (other than certain amendments that require the consent of each affected Owner or the consent of the Trustee), exercising remedies upon the occurrence of a default under the Master Indenture, providing specific approvals, consents or waivers or instruments of similar purpose, and to the extent the bond insurer is deemed to be the sole Owner for such purposes, the rights of the Owners of the Third Lien Obligations shall be abrogated. The City shall not replace the Policy, and the Trustee shall not consent to the replacement of the Policy, if such would result in a downgrade or withdrawal of the then current rating on the Variable Rate Series 2005 Bonds of any Rating Agency; and prior to any such replacement, the City shall give thirty (30) days’ prior written notice to the Holders and obtain the written consent of the Liquidity Facility Provider thereto (if at such time there is a Liquidity Facility securing the Variable Rate Series 2005 Bonds).

B-17

In addition, the Bond Insurer has reserved the right, in endorsements to its Bond Insurance Policies securing the Variable Rate Series 2005 Bonds, to assign its obligations under either Bond Insurance Policy to an affiliate that is a licensed financial guaranty insurance corporation, provided that (a) at the time of such assignment the insurance strength or insurance financial strength of such affiliate is rated at least equal to the insurance strength or insurance financial strength of the Bond Insurer; (b) the rating of the Variable Rate Series 2005 Bonds covered by such Bond Insurance Policy would not be reduced or withdrawn as a result of such assignment by any of Fitch, Moody’s or S&P; (c) at least 90 days’ prior written notice thereof has been provided by the Bond Insurer to the City, the Trustee, the Remarketing Agent and the Liquidity Facility Provider; (d) the prior written consent of the City and the Liquidity Facility Provider has been obtained, which consent will not be unreasonably withheld; and (e) the Trustee has provided not less than 30 days prior written notice to the Holders. Absent compliance with the foregoing, such Bond Insurance Policies shall not be assignable by the Bond Insurer.

APPENDIX C

SUMMARY OF CERTAIN PROVISIONS OF THE AIRPORT USE AGREEMENTS

C-1

APPENDIX C

SUMMARY OF CERTAIN PROVISIONS OF THE AIRPORT USE AGREEMENTS

The following is a summary of certain provisions of the Airport Use Agreements, to which reference is made for a complete statement of their provisions and contents. Certain words and terms used in this summary are defined in the Airport Use Agreements and have the same meanings in this summary, except as defined otherwise in this Official Statement. The Airport Use Agreements signed by the Airline Parties are substantially similar except for provisions relating to different exclusive use premises for each Airline Party and the termination or extension of certain other agreements of each Airline Party relating to O’Hare.

Term

The Airport Use Agreements became effective in 1983 (or upon their execution if later), were amended and restated in 1985, were amended again in 1996, and expire in 2018.

Cost-Revenue Centers

The Airport Use Agreements group areas in O’Hare for various accounting purposes into six Cost-Revenue Centers. These are the Terminal Area, the Airfield Area, the International Terminal Area, the Terminal Support Area, the Fueling System and the Land Support Area (see “Land Support Area” below for a separate discussion). The purpose of the Cost-Revenue Centers is to allow for the calculation of Airport Fees and Charges in a manner that allocates such fees and charges among the Airline Parties (and, in the case of the Airfield Area, among non-Airline Parties as well) based on their usage of O’Hare. Accordingly, each of the Cost-Revenue Centers (except the Land Support Area) has allocated to it Revenues, Operation and Maintenance Expenses, Debt Service and certain fund deposit requirements. Net deficits (that is, generally, the excess of Operation and Maintenance Expenses, Debt Service and fund deposits over Revenues) generated in any Fiscal Year in the Terminal Area and the Airfield Area Cost-Revenue Centers are paid by the Airline Parties in the form of Terminal Area Use Charges and Landing Fees, respectively. The net cost of the Fueling System Cost-Revenue Center is paid in the form of a separate Fueling System Fee. The Terminal Support Area and International Terminal Area Cost-Revenue Centers do not have specific fees or charges associated with them under the Airport Use Agreements. Instead, the net deficit (or net revenue) of each is calculated and then treated as a cost (or revenue) of the Terminal Area or the Airfield Area. It is not anticipated, however, that there will be a net deficit of the International Terminal Area under the Airport Use Agreements, because the net cost of the International Terminal Area is paid through fees and charges charged to the airlines that are signatories to the separate International Terminal Use Agreements.

Land Support Area

The Land Support Area is a geographic portion of O’Hare that presently consists of vacant land, certain air rights and facilities, such as air cargo (including mail), freight forwarding, aircraft maintenance, flight kitchens and fuel storage, and a site at O’Hare formerly occupied by the U.S. Military. The expenses of the Land Support Area are not included in the calculation of Airport Fees and Charges. Similarly, with certain exceptions, the income generated from facilities in the Land Support Area is not considered Revenues, and is not pledged as security for the payment of the Airport Obligations. There is currently no Debt Service allocated to the Land Support Area. One-half of the net revenues of the Land Support Area (excluding certain items) are deposited in the Revenue Fund for subsequent deposit in the Airport Development Fund described below under the subcaption “Special Funds.” In addition, any net revenues of the Land Support Area allocable to any car or vehicle rental

C-2

concessions and Airport passenger public parking facilities located in the future on the former military site are to be deposited in the Revenue Fund and credited against Airport Fees and Charges.

Rentals, Fees and Charges

The Airport Use Agreements establish a $5 per square foot Terminal Area Rental for premises leased to Airline Parties for their exclusive occupancy. Terminal Area Use Charges for such premises also are calculated on a square footage basis. Terminal Area Use Charges are based upon an allocation of all net costs attributable to the Terminal Area among Airline Parties leasing exclusive use premises in the Terminal Area.

The net costs of the Fueling System Cost-Revenue Center are allocated among Airline Parties on the basis of fuel gallonage. Each Airline Party pays Fueling System Fees on the basis of a formula which reflects the ratio of its total gallonage to the total gallonage of all Airline Parties.

Upon execution of an amendment by the City and the Airline Parties, the City intends to calculate the Landing Fees as follows. Landing Fees are calculated by first determining the Net Cost of the Airfield Area, which consists of portions of the following allocable to the Airfield Area: the sum of O&M Expenses, Net Debt Service, fund deposit requirements, and net deficit of the International Terminal Area, less the sum of Non-Use Agreement Revenues (exclusive of landing fees payable by persons other than Airline Parties) and net revenues of the International Terminal Area. Beginning in rates and charges year 2006, the Net Cost of the Airfield Area will be allocated among Airline Parties and users of the Airfield Area that are not Airline Parties on the basis of the relative use of the Airfield Area by such persons. Such allocation of the Net Cost of the Airfield Area shall be based on the respective approved maximum landed weight of aircraft of Airline Parties landed during such Fiscal Year and the approved maximum landed weight of all aircraft of other users during such Fiscal Year, provided that for purposes of such allocation, the landed weight of certain classes of users of the Airfield Area may be increased by certain premium factors determined by the Commissioner of Aviation from time to time. To the extent in any Fiscal Year Landing Fees collected from users of the Airfield Area other than Airline Parties are in excess of the Net Cost of the Airfield Area allocated to such users for that Fiscal Year, such excess shall be applied in future years in a manner that does not, directly or indirectly, benefit any Airline Party.

General Commitment to Pay Airport Fees and Charges

The Airport Use Agreements provide that the aggregate of all rentals, fees and charges to be paid under all Airport Use Agreements by all Airline Parties shall be sufficient to pay for the net cost of operating, maintaining and developing O’Hare (excluding the Land Support Area), including the satisfaction of all of the City’s obligations to make deposits and payments under any ordinance or resolution authorizing Airport Obligations. Airport Fees and Charges not paid by a defaulting Airline Party, after appropriate collection efforts by the City and after exhaustion of certain funds available for that purpose, among others, are to be paid by all other Airline Parties as part of their Landing Fees as a result of the inclusion of such unpaid fees and charges in Operation and Maintenance Expenses of the Airfield Area.

C-3

Billing of Airport Fees and Charges

Not later than 30 days prior to the end of each Fiscal Year, the City furnishes the Airline Parties a projection of the Landing Fee Rate and Terminal Area Use Charges for the next Fiscal Year (“Projection of Fees and Charges”). The Landing Fees, Terminal Area Use Charges and Fueling System Fees for the next Fiscal Year are computed on the basis of the Projection of Fees and Charges, and Terminal Area Rentals are based on leased exclusive use premises. Not later than the 10th day of each month the City bills each Airline Party for the amount of its allocable share of Terminal Area Rentals and Use Charges for the next month. The amount so billed is equal to 1/12th of each Airline Party’s share of such rentals and charges for the Fiscal Year and is due on the first day of such next month. During each month the City also bills each Airline Party for Landing Fees payable for the preceding month; such Landing Fees are due within 30 days after the date of billing.

The Projection of Fees and Charges is adjusted at mid-year and Landing Fees, Terminal Area Use Charges and Fueling System Fees then may be adjusted accordingly. Within six months after the close of each Fiscal Year, a final audit is required to be prepared showing actual Landing Fees, Terminal Area Use Charges and Fueling System Fees for such Fiscal Year. Each Airline Party is entitled to a credit against subsequent billings (and in certain instances cash payments) for amounts paid in excess of the audited actual fees and charges, and is obligated to pay any deficiency along with its next monthly payment.

Capital Projects

The Airport Use Agreements contain as exhibits thereto descriptions of certain Capital Projects approved by the Airline Parties. The City was authorized in the Airport Use Agreements to issue Airport Obligations and include the Debt Service thereon in the calculation of Airport Fees and Charges without further consent or approval of the Airline Parties for all such Capital Projects, and also to (a) fund the cost of designing, constructing and equipping Capital Projects necessary to comply with any valid rule, regulation or order of any federal or state agency; (b) fund the cost of certain tenant improvements and certain relocation expenses; (c) fund insurance or condemnation award deficiencies; (d) refund or refinance Special Facility Revenue Bonds by agreement with Airline Parties; and (e) fund program and construction management costs and expenses relating to the implementation of the Airport Use Agreements. In addition, the City is authorized to issue Airport Obligations and include the Debt Service thereon in the calculation of Airport Fees and Charges to finance the cost of any Capital Projects approved by a Majority-in-Interest of the Airline Parties.

The foregoing notwithstanding, the Airport Use Agreements set forth a number of restrictions and limitations applicable to Airport Obligations issued by the City, any or all of which may be waived by a Majority-in-Interest.

Special Funds

An Airport Development Fund and an Emergency Reserve Fund were created under the Airport Use Agreements. The Airport Development Fund is funded partially out of Airport Fees and Charges and partially from Net Revenues of the Land Support Area deposited therein, as described above. The Emergency Reserve Fund is no longer being funded from any source. Moneys in the Airport Development Fund may be used for any lawful purpose without approval by the Airline Parties. Amounts remaining, if any, in the Emergency Reserve Fund may be used to pay certain uninsured awards, judgments or settlements. Neither the Airport Development Fund nor the Emergency Reserve Fund is pledged to secure Airport Obligations.

C-4

Grant of Rights; Obligations of City and Airline Parties

Each Airline Party is granted the right to conduct an Air Transportation Business at O’Hare, and to perform all operations and functions incidental, necessary or proper thereto. The City has agreed not to make any payments out of the Airport Development Fund for any improvements which would have the effect of granting, or otherwise grant, any airline in competition with any Airline Party any rights or privileges at O’Hare of a character or on a basis more favorable to such person than those granted or available to an Airline Party, the effect of which is to place an Airline Party at a competitive disadvantage.

Each of the Airline Parties and the City has certain specified obligations with respect to the maintenance and operation of O’Hare. The City also has certain specified insurance obligations with respect to O’Hare.

If any Airline Party is obligated to pay debt service on any Special Facility Revenue Bonds, the Airline Party’s continued right to use and occupy its exclusive use premises is conditioned on the performance and observance by the Airline Party of its covenants and agreements in the special facility agreement related to such Special Facility Revenue Bonds, including, but not limited to, its obligation to pay debt service.

Sublease and Assignment

All subleases and assignments of exclusive use premises must be approved by the City. No sublease or assignment relieves an Airline Party from primary liability for the payment of Terminal Area Use Charges or Terminal Area Rentals.

No Abatement or Suspension of Payment

The Airport Use Agreements provide that the Airline Parties shall not abate, suspend, postpone, set-off or discontinue any payments of Airport Fees and Charges which they are obligated to pay thereunder.

Default

Events of Default are defined to be (a) the failure of an Airline Party to pay any landing fees, rentals or use charges when due, (b) the dissolution or liquidation of an Airline Party, (c) the insolvency or bankruptcy of an Airline Party, (d) the abandonment by an Airline Party of its air transportation business at O’Hare, or (e) the failure by an Airline Party to perform any covenant or condition in the Airport Use Agreements upon 30 days’ notice to the Airline Party of such failure. Upon default, the City may terminate an Airport Use Agreement, may exclude an Airline from possession of exclusive use premises without termination and may take such other action which it deems appropriate.

Termination

The City may terminate an Airline Party’s Airport Use Agreement upon the happening of certain Events of Default, as described therein. So long as any Airport Obligations are outstanding, the Airline Parties have no express rights to terminate the Airport Use Agreements, but if the City fails to perform its obligations, the Airline Parties may seek judicial relief.

APPENDIX D

AUDITED FINANCIAL STATEMENTS

City of Chicago, Illinois Chicago O’Hare International Airport Basic Financial Statements for the Years Ended December 31, 2004 and 2003,Required Supplementary Information, Additional Information, Statistical Information and Independent Auditors’ Report

CITY OF CHICAGO, ILLINOIS CHICAGO O’HARE INTERNATIONAL AIRPORT

TABLE OF CONTENTS

Page

INDEPENDENT AUDITORS’ REPORT 1-2

MANAGEMENT’S DISCUSSION AND ANALYSIS (REQUIRED SUPPLEMENTARY INFORMATION) 3–11

BASIC FINANCIAL STATEMENTS:

Statements of Net Assets 12

Statements of Revenues, Expenses and Changes in Net Assets 13

Statements of Cash Flows 14–15

Notes to Basic Financial Statements 16–33

ADDITIONAL INFORMATION:

First and Second Lien General Airport Revenue Bonds Calculation of Coverage 34–35

Third Lien General Airport Revenue Bonds Calculation of Coverage 36–37

INDEPENDENT AUDITORS’ REPORT

The Honorable Richard M. Daley, Mayor, and Members of the City Council City of Chicago, Illinois

We have audited the accompanying basic financial statements of Chicago O’Hare International Airport of the City of Chicago, Illinois (City) as of December 31, 2004 and 2003, and for the years then ended, listed in the foregoing table of contents. These financial statements are the responsibility of the City’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1, the basic financial statements referred to above present only Chicago O’Hare International Airport and are not intended to present the financial position of the City, the results of its operations, and its cash flows, in conformity with accounting principles generally accepted in the United States of America.

In our opinion, such basic financial statements present fairly, in all material respects, the financial position of Chicago O’Hare International Airport as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The Management’s Discussion and Analysis on pages 3 through 11 is not a required part of the basic financial statements, but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures that consisted principally of inquiries of management regarding methods of measurement and presentation of the required supplementary information. However, we did not audit the information and we express no opinion or any other form of assurance on it.

- 2 -

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information listed in the foregoing table of contents, which is also the responsibility of the City’s management, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such additional information (pages 34 through 37) has been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, is fairly presented, in all material respects, when considered in relation to the financial statements taken as a whole.

The statistical information (pages 38 through 49) is also presented for the purpose of additional analysis and is not a required part of the basic financial statements. Such statistical information has not been subjected to auditing procedures and, accordingly, we do not express an opinion on it.

June 17, 2005

- 3 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following discussion and analysis of Chicago O’Hare International Airport’s (Airport) financial performance provides an introduction and overview of the Airport’s financial activities for the fiscal years ended December 31, 2004 and 2003. Please read this discussion in conjunction with the Airport’s basic financial statements and the notes to basic financial statements immediately following this section.

FINANCIAL HIGHLIGHTS 2004

• Operating revenues for 2004 decreased by $39,388,768 (8.2 percent) compared to prior year operating revenues.

• Operating expenses before depreciation and amortization decreased by $13,719,849 compared to 2003 primarily due to decreased salaries and wages costs.

• The Airport’s total net assets at December 31, 2004 were $807,538,878. This is a decrease of $25,614,204 (3.1 percent) over total net assets at December 31, 2003.

• Capital asset additions for 2004 were $291,579,464 (41.9 percent increase over 2003) principally due to terminal improvements, heating and refrigeration improvements, airfield drainage projects and runways and taxiway rehabilitation.

• During 2004, the Airport sold $385,045,000 Chicago O’Hare International Airport Third Lien Revenue Refunding Bonds, Series 2004 A-H. Total outstanding revenue bonds and notes, net of unamortized discount and loss on refunding, at December 31, 2004 were $4,017,944,109.

2003

• Operating revenues for 2003 increased by $30,911,464 (6.9 percent) compared to prior year operating revenues.

• Operating expenses before depreciation and amortization increased by $6,179,449 compared to 2002 primarily due to increased insurance costs and land restoration costs.

• The Airport’s total net assets at December 31, 2003 were $833,153,082. This is an increase of $3,355,021 (.4 percent) over total net assets at December 31, 2002.

• Capital asset additions for 2003 were $205,479,487 (10.4 percent decrease over 2002) principally due to terminal improvements, heating and refrigeration improvements, airfield drainage projects and runways and taxiway rehabilitation.

• During 2003, the Airport sold $1,135,640,000 Chicago O’Hare International Airport Third Lien Revenue Bonds, Series 2003 A-F. Total outstanding revenue bonds and notes, net of unamortized discount and loss on refunding, at December 31, 2003 were $4,037,332,402.

- 4 -

OVERVIEW OF THE BASIC FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the Airport’s basic financial statements. The Airport’s basic financial statements are comprised of the financial statements and the notes to financial statements. In addition to the basic financial statements this report also presents additional and statistical information after the notes to basic financial statements.

The Statements of Net Assets present all Airport’s assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by private-sector companies. The difference between assets and liabilities is reported as net assets. The increase or decrease in net assets may serve as an indicator, over time, whether the Airport’s financial position is improving or deteriorating. However, the consideration of other non-financial factors such as changes within the airline industry may be necessary in the assessment of overall financial position and health of the Airport.

The Statements of Revenues, Expenses and Changes in Net Assets present all current fiscal year revenues and expenses, regardless of when cash is received or paid, and the ensuing change in net assets.

The Statements of Cash Flows report how cash and cash equivalents were provided and used by the Airport’s operating, capital financing and investing activities. These statements are prepared on a cash basis and present the cash received and disbursed, the net increase or decrease in cash and cash equivalents for the year and the cash and cash equivalents balance at year-end.

The Notes to Basic Financial Statements are an integral part of the basic financial statements; accordingly, such disclosures are essential to a full understanding of the information provided in the basic financial statements. The Notes to Basic Financial Statements begin on page 16.

In addition to the basic financial statements, this report includes Additional and Statistical Information. The Additional Information section presents the debt service coverage calculations and the Statistical Information section includes certain unaudited information related to the Airport’s historical financial and non-financial operating results and capital activities.

FINANCIAL ANALYSIS Landing fees, terminal area use charges 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 debt service and fund deposits as determined under provisions of the Amended and Restated Airport Use Agreement and Terminal Facilities Lease and the International Terminal Use Agreement and Facilities Lease (Use Agreements). Incremental amounts due from the airlines arise when amounts assessed, based on the estimated rates used during the year, are less than actual expenses and required deposits for the year. Such incremental amounts due from airlines are included in accrued revenue. Incremental amounts due to the airlines arise when amounts assessed, based on the estimated rates used during the year, exceed actual expenses and required deposits for the year. Such incremental amounts due to airlines are included in deferred revenue.

- 5 -

At December 31, 2004, the Airport’s financial position continued to be strong with total assets of $5,190,387,203, total liabilities of $4,382,848,325 and net assets of $807,538,878. A comparative condensed summary of the Airport’s net assets at December 31, 2004, 2003 and 2002 is as follows:

2004 2003 2002

Current assets 214,405,943$ 145,461,132$ 119,642,720$Noncurrent assets: Restricted and other assets 1,775,985,389 1,943,105,321 1,328,047,516 Capital assets—net 3,199,995,871 3,026,227,748 2,934,196,934

Total assets 5,190,387,203 5,114,794,201 4,381,887,170

Current liabilities 189,565,934 79,686,206 91,684,032Noncurrent liabilities 4,193,282,391 4,201,954,913 3,460,405,077

Total liabilities 4,382,848,325 4,281,641,119 3,552,089,109

Net assets: Invested in capital—net of related debt 285,193,710 332,512,319 422,075,261 Restricted 497,505,159 434,865,836 379,764,112 Unrestricted 24,840,009 65,774,927 27,958,688

Total net assets 807,538,878$ 833,153,082$ 829,798,061$

Net Assets

2004

Current assets increased by $68,944,811 (47.4 percent) primarily due to increased cash and cash equivalents and investments, accounts receivable balances and due from City funds balances at December 31, 2004. The increase of cash and cash equivalents and investments was primarily due to the collections of additional revenue, deferred revenue and advances for terminal and hangar rent offset by payments for accounts payable and due to other City funds. The Airport’s current ratio (current assets/current liabilities) at December 31, 2004 and 2003 was 1.13:1 and 1.83:1, respectively. Restricted and other assets decreased by $167,119,932 (8.6 percent) primarily due to the payment of construction costs. Capital assets increased by $173,768,123 (5.7 percent) due principally to capital activities of the Capital Development Program at the Airport.

The increase in current liabilities of $109,879,728 (137.9 percent) is directly related to the increased accounts payable ($2,425,053), due to other City funds liabilities ($6,216,638) and deferred revenue ($101,647,100) offset by decreased advances for prepaid terminal and hanger rent ($409,063). Noncurrent liabilities decreased slightly by $8,672,522 (.2 percent) mainly due to the issuance of $385,045,000 Chicago O’Hare International Airport Third Lien Revenue Refunding Bonds, Series 2004 A-H offset the refunding of certain bonds and the January 1, 2004 principal payment.

Net assets may serve, over a period of time, a useful indicator of the Airport’s financial position. As of December 31, 2004 total net assets were $807,538,878, a decrease of $25,614,204 (3.1 percent) over 2003. Due to the residual Airport use agreement, this decrease is mainly due to the $45,409,604 loss from operations and nonoperating revenues and expenses, offset by $19,795,400 of Airport Improvement Program (AIP) capital grants recognized during 2004.

- 6 -

2003

Current assets increased by $25,818,412 (21.6 percent) due to increased cash and cash equivalents and investments balances at December 31, 2003. This increase was primarily due to the collections of additional revenue, deferred revenue and advances for terminal and hangar rent offset by payments for accounts payable and due to other City funds. The Airport’s current ratio (current assets/current liabilities) at December 31, 2003 and 2002 was 1.83:1 and 1.30:1, respectively. Restricted and other assets increased by $615,057,805 (46.3 percent) primarily due to the issuance of the Chicago O’Hare International Airport Revenue Bonds, Series 2003 A-F. Capital assets increased by $92,030,814 (3.1 percent) due principally to capital activities of the Capital Development Program at the Airport.

The decrease in current liabilities of $11,997,826 (13.1 percent) is directly related to the decreased accounts payable and due to other City funds liabilities ($26,394,038) offset by increased deferred revenue and advances for prepaid terminal and hanger rent ($14,396,212). Noncurrent liabilities increased by $741,549,836 (21.4 percent) mainly due to the issuance of $1,135,640,000 Chicago O’Hare International Airport Third Lien Revenue Bonds, Series 2003 A-F and the increase in interest payable of $16,240,034 offset by the refunding of certain bonds and outstanding commercial paper notes in the amount of approximately $555,000,000.

Net assets may serve, over a period of time, a useful indicator of the Airport’s financial position. As of December 31, 2003 total net assets were $833,153,082, an increase of $3,355,021 (.4 percent) over 2002.Due to the residual Airport use agreement, this increase is mainly due to the $8,937,913 of Airport Improvement Program (AIP) capital grants recognized during 2003, offset by $5,582,892 loss from operations and nonoperating revenues and expenses.

- 7 -

The primary sources of Airport operating revenues are landing fees, terminal area use charges, rents and concession revenues as defined within the Airline Use Agreement and Facilities Lease. These revenues fund Airport operating expenses, fund deposits and net debt service requirements. A comparative condensed summary of the Airport’s changes in net assets for the years ended December 31, 2004, 2003 and 2002 is as follows:

2004 2003 2002

Operating revenues Landing fees and terminal charges 228,275,797$ 291,577,228$ 269,810,527$ Rents, concessions and other 214,292,852 190,380,189 181,235,426

Total operating revenues 442,568,649 481,957,417 451,045,953

Operating expenses: Salaries and wages 134,889,814 148,860,522 148,829,933 Repairs and maintenance 66,065,910 65,870,060 66,309,584 Professional and engineering 33,449,196 35,758,798 33,494,460 Other operating expenses 83,424,800 81,060,189 76,736,143 Depreciation and amortization 137,660,652 130,753,775 124,568,226

Total operating expenses 455,490,372 462,303,344 449,938,346

Operating income (12,921,723) 19,654,073 1,107,607

Nonoperating revenues 163,927,083 150,047,583 158,532,998Nonoperating expenses (196,414,964) (175,284,548) (166,823,966)Capital grants 19,795,400 8,937,913 33,016,713Operating transfer out (4,698,435)

Increase in net assets (25,614,204)$ 3,355,021$ 21,134,917$

Changes in Net Assets

2004

Landing fees and terminal area use charges for the years 2004 and 2003 were $228,275,797 and $291,577,228, respectively. Rents, concessions and other revenues were $214,292,852 and $190,380,189 for the years 2004 and 2003, respectively. The decrease in 2004 operating revenues of $39,388,768 (8.2 percent) compared to 2003 was primarily due to decreased landing fees, terminal rental and usage revenues of approximately $10,020,000, and $51,476,000, respectively, offset by increased concession revenues and reimbursements of $22,108,000. Such activity was due to the residual Airport Use Agreement and Terminal Lease that requires airline revenue to be recognized to the extent necessary to pay the Airport’s operating and maintenance expenses, net debt service and fund deposit requirements, reduced by non-airline revenues

Salaries and wages and decreased in 2004 by $13,970,708 compared to 2003. This decrease is primarily due to the City’s early retirement incentive program and not filling vacant positions, reduced overtime costs and reduced medical care premiums. Repairs and maintenance expenses of $66,065,910 were flat (less than 1 percent variance) when compared with $65,870,060 for 2003. Professional and engineering expenses decreased by $2,309,602 in 2004 when compared to 2003 expenses. This decrease is mainly due to land restoration costs of approximately $2,100,000 associated with the closure of Miegs Field reported in 2003 that were not reported in 2004. Other operating expenses of $83,424,800 increased by $2,364,611 in 2004

- 8 -

compared to 2003 due to additional electric and water costs of $2,083,907. Other operating expenses are mainly comprised of employee benefit costs, insurance premiums, indirect costs and utilities. Depreciation and amortization expense increased $6,906,877 (5.3 percent) as a result of the continued capital activities of the Capital Improvement Program.

Fiscal year 2004 nonoperating revenues of $163,927,083 are comprised of passenger facility charges (PFC) revenue ($141,732,819) and interest income ($22,194,264). During 2004, nonoperating revenues increased by $13,879,500 principally due to increased PFC revenues of $12,408,394 as a result of increased passenger activity at the airport.

Nonoperating expenses of $196,414,964 and $175,284,548 for the years 2004 and 2003, respectively, were comprised of PFC and bond interest expenses. The increase of $21,130,416 (12.0 percent) for 2004 over 2003 was due to additional interest expense requirements related to the Chicago O’Hare International Airport Third Lien Revenue Bonds, Series 2003 A-F issued in August and November 2003 and by increased PFC expenses incurred.

Capital grants, comprising mainly of federal grants, increased from $8,937,913 in 2003 to $19,795,400 in 2004, a 121.5 percent increase, as a result of when capital expenditures were incurred and thus became eligible for the related reimbursement.

2003

Landing fees and terminal area use charges for the years 2003 and 2002 were $291,577,228 and $269,810,527, respectively. Rents, concessions and other revenues were $190,380,189 and $181,235,426 for the years 2003 and 2002, respectively. The increase in 2003 operating revenues of $30,911,464 (6.9 percent) compared to 2002 was primarily due to increased landing fees, terminal rental and usage revenues and concession revenues of $10,057,000, $13,120,000 and $7,815,000, respectively. Such increases were due to the residual Airport Use Agreement and Terminal Lease that requires airline revenue to be recognized to the extent necessary to pay the Airport’s operating and maintenance expenses, net debt service and fund deposit requirements, reduced by non-airline revenues.

Salaries and wages and repair and maintenance expenses in 2003 of $148,860,522 and $65,870,060,respectively, were flat (less than 1 percent variance) when compared with $148,829,933 and $66,309,584, respectively, for 2002. The increase in professional and engineering of $2,264,338 (6.8 percent) is primarily due to land restoration costs of approximately $2,100,000 associated with the closure of Miegs Field on Northerly Island. Other operating expenses are mainly comprised of employee benefit costs, insurance premiums, indirect costs and utilities. The increase of $4,324,046 for other operating costs was mainly due to increased insurance costs, indirect administrative costs and provision for doubtful accounts of approximately $5,581,000, $1,368,000 and $2,000,000, respectively offset by approximately $4,000,000 in reductions for utilities, materials and supplies and machinery and equipment. Depreciation and amortization expense increased $6,185,549 (5.0 percent) as a result of the continued capital activities of the Capital Improvement Program.

Fiscal year 2003 nonoperating revenues of $150,047,583 are comprised of passenger facility charges (PFC) revenue ($129,324,425) and interest income ($20,723,158). During 2003, nonoperating revenues decreased principally due to lower interest rate yields on construction and capitalized interest cash and investment trustee accounts that were significantly reduced during the year by cash outlays for debt service requirements and construction activities.

Nonoperating expenses of $175,284,548 and $166,823,966 for the years 2003 and 2002, respectively, were comprised of PFC and bond interest expenses. The increase of $8,460,582 (5.1 percent) for 2003 over 2002

- 9 -

was due to additional interest expense requirements due to bonds issued during 2003 offset by reduced PFC expenses incurred.

Capital grants, comprising mainly of federal grants, decreased from $33,016,713 in 2002 to $8,937,913 in 2003, a 72.9 percent decrease. This decrease is primarily due to a reduction of capital expenditures and the related capital grant reimbursement during 2003. Additionally, no operating transfer out occurred in 2003.

A comparative summary of the Airport’s changes in cash flows for the years ended December 31, 2004, 2003 and 2002 is as follows:

2004 2003 2002Cash from activites: Operating 208,887,398$ 139,931,011$ 151,841,812$ Capital and related financing (390,049,175) 430,075,864 (253,827,157) Investing 122,681,280 (340,148,027) 177,110,311

Net change in cash and cash equivalents (58,480,497) 229,858,848 75,124,966Cash and cash equivalents: Beginning of year 829,015,006 599,156,158 524,031,192

End of year 770,534,509$ 829,015,006$ 599,156,158$

Cash Flows

2004

As of December 31, 2004 the Airport’s available cash and cash equivalents of $770,534,509 decreased by $58,480,497 compared to $829,015,006 at December 31, 2003 due to positive flows of cash provided by operating and investing activities of $208,887,398 and $122,681,280, respectively, offset by the use of $390,049,175 for capital and related financing activities. Total cash and cash equivalents at December 31, 2004 were comprised of unrestricted and restricted cash and cash equivalents of $141,928,384 and $628,606,125.

2003

As of December 31, 2003 the Airport’s available cash and cash equivalents of $829,015,006 increased by $229,858,848 compared to $599,156,158 at December 31, 2002 due to positive flows of cash provided by operating and capital and related financing activities of $139,931,011 and $430,075,864, respectively, offset by the use of $340,148,027 for investing activities. Total cash and cash equivalents at December 31, 2003 were comprised of unrestricted and restricted cash and cash equivalents of $96,713,749 and $732,301,257.

CAPITAL ASSET AND DEBT ADMINISTRATION At the end of 2004 and 2003 the Airport had $3,199,995,871 and $3,026,227,748, respectively, invested in net capital assets. During 2004, the Airport had additions of $291,579,464 related to capital activities. This included $36,644,305 for land acquisition and the balance ($254,935,159) for terminal improvements, security enhancements and airfield drainage, runway, roadway and parking improvements.

During 2004, completed projects totaling $134,744,438 were transferred from construction in progress to applicable building and other facilities capital accounts. The major completed projects were electrical

- 10 -

system improvements, runway and taxiway rehab, apron reconstruction, security enhancement, water drainage and terminal improvements.

The Airport’s capital assets at December 31, 2004, 2003 and 2002 are summarized as follows:

2004 2003 2002

Capital assets not depreciated: Land 161,402,555$ 124,758,250$ 102,250,894$ Construction in progress 374,886,523 254,695,805 308,302,971

Total capital assets not depreciated 536,289,078 379,454,055 410,553,865

Capital assets depreciated: Buildings and other facilities 4,180,158,390 4,045,413,949 3,808,936,708

Less accumulated depreciation for: Buildings and other facilities (1,516,451,597) (1,398,640,256) (1,285,293,639)

Total capital assets depreciated–net 2,663,706,793 2,646,773,693 2,523,643,069

Total property and facilities–net 3,199,995,871$ 3,026,227,748$ 2,934,196,934$

Capital Assets at Year-End

The Airport’s capital activities are funded through Airport revenue bonds, federal and state grants, passenger facility charges (PFC) and Airport revenue. Additional information on the Airport’s capital assets is presented in Note 5 of the notes to the financial statements on page 30 of this report.

In December 2004, the Airport sold $385,045,000 of Chicago O’Hare International Airport Third Lien Revenue Refunding Bonds, Series 2004 A-H. The bonds have maturity and mandatory redemption dates ranging from January 1, 2007 to January 1, 2035. Net proceeds were used to refund certain first and second lien revenue bond. The Airport’s outstanding debt at December 31, 2004, 2003 and 2002 is summarized as follows:

2004 2003 2002

Revenue bonds and notes payable 4,110,043,000$ 4,135,611,000$ 3,424,590,000$Less unamortized: Bond discount 8,246,597 22,635,875 33,757,567 Deferred loss on refunding 83,852,294 75,642,723 72,487,767

Total outstanding debt–net 4,017,944,109 4,037,332,402 3,318,344,666Less current bonds payable 60,355,000 37,045,000 33,675,000

Total long-term revenue bonds and notes payable–net 3,957,589,109$ 4,000,287,402$ 3,284,669,666$

Outstanding Debt at Year-End

Additional information on the Airport’s long-term debt is presented in Note 4 of the notes to the basic financial statements beginning on page 21 of this report.

- 11 -

The Airport’s revenue bonds at December 31, 2004 had credit ratings with each of the three major rating agencies as follows:

Moody’sInvestor Standard FitchServices & Poor’s Ratings

First Lien Chicago O’Hare Revenue Bonds A1 A+ AA-Second Lien Chicago O’Hare Revenue Bonds A1 A AA-Third Lien Chicago O’Hare Revenue Bonds A2 A- AFirst Lien Passenger Facility Charge Revenue Bonds A1 A+ ASecond Lien Passenger Facility Charge Revenue Bonds A2 A A

At December 31, 2004 and 2003 the Airport was in compliance with the debt covenants as stated within the Master Trust Indentures. Additional information on the Airport’s debt covenant (debt coverage calculation) begins on page 34 of this report.

ECONOMIC FACTORS AND NEXT YEAR RATES AND CHARGES In 2004, the Airport was the busiest airport in the world, measured in terms of total aircraft operations, and the second busiest in terms of total passengers. The Airport had 37,464,632 and 34,454,921 enplaned passengers in 2004 and 2003, respectively. The strong origin-destination passenger demand and the Airport’s central geographical location near the center of the United States and along the most heavily traveled east/west air routes make the Airport a natural hub location.

United Airlines and American Airlines each use the Airport as one of their major hubs. United Airlines filed for bankruptcy court protection under Chapter 11 on December 9, 2002. United Airlines (including its regional affiliates) comprised 45.9 percent of the Airport’s enplaned passengers in 2004 and 49.8 percent of the enplaned passengers in 2003. American Airlines (including its regional affiliate) comprised 36.4 percent of the Airport’s enplaned passengers in 2004 and 34.4 percent of the enplaned passengers in 2003.

Based on the Airport’s rates and charges for fiscal year 2005, total budgeted operating and maintenance expenses are projected at $354,441,086 and total net debt service and fund deposit requirements are projected at $179,056,580. Additionally, 2004 nonsignatory revenues are budgeted for $259,219,128 resulting in a net airline requirement of $274,278,538 that will be funded through landing fees, terminal area use charges and fuel system use charges.

REQUESTS FOR INFORMATION This financial report is designed to provide the reader with a general overview of the Airport’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Chicago Comptroller’s Office.

- 12 -

CITY OF CHICAGO, ILLINOISCHICAGO O’HARE INTERNATIONAL AIRPORT

STATEMENTS OF NET ASSETSDECEMBER 31, 2004 AND 2003

ASSETS 2004 2003 LIABILITIES AND NET ASSETS 2004 2003

CURRENT ASSETS: CURRENT LIABILITIES: Cash and cash equivalents (Note 2) 141,928,384$ 96,713,749$ Accounts payable and accrued liabilities 40,921,422$ 38,496,369$ Investments (Note 2) 10,748,209 12,894,578 Due to other City funds 8,012,407 1,795,769 Accounts receivable–net of allowance for Advances for terminal and hangar rent 14,143,461 14,552,524 doubtful accounts of approximately Deferred revenue 126,488,644 24,841,544 $2,361,000 and 2004 and $3,210,000 in 2003 41,627,500 34,520,526 Due from other City funds 17,742,807 Total current liabilities 189,565,934 79,686,206 Prepaid expenses 2,179,516 1,298,038 Interest receivable 179,527 34,241 NONCURRENT LIABILITIES:

Liabilities payable from restricted assets (Note 3): Total current assets 214,405,943 145,461,132 Revenue bonds payable (Note 4) 60,355,000 37,045,000

Accounts payable 77,191,383 64,540,359NONCURRENT ASSETS: Due to other City funds 8,739 Restricted assets (Note 3): Interest payable 98,146,899 100,073,413 Cash and cash equivalents (Note 2) 628,606,125 732,301,257 Investments (Note 2) 798,198,638 883,985,528 Total liabilities payable from restricted assets 235,693,282 201,667,511 Passenger facility charges receivable (Note 1) 19,154,132 13,051,671 Interest receivable 8,693,557 8,371,672 Due from other City funds 4,656 Due from other governments 14,095,270 3,754,603 Revenue bonds payable–net of discount (Note 4) 3,956,226,109 3,998,956,402

Notes payable (Note 4) 1,363,000 1,331,000 Total restricted assets 1,468,752,378 1,641,464,731

Total revenue bonds and notes payable–net 3,957,589,109 4,000,287,402Other assets Deferred soundproofing & financing fees 307,233,011 301,640,590 Total liabilities 4,382,848,325$ 4,281,641,119$

Property and facilities (Note 5): NET ASSETS (Note 1): Land 161,402,555 124,758,250 Invested in capital assets–net of related debt 285,193,710$ 332,512,319$ Buildings and other facilities 4,180,158,390 4,045,413,949 Construction in progress 374,886,523 254,695,805 Restricted net assets:

Debt service 46,519,136 14,650,342 Total property and facilities 4,716,447,468 4,424,868,004 Capital projects 71,108,193 51,475,990 Less accumulated depreciation 1,516,451,597 1,398,640,256 Passenger facility charges 184,271,303 157,395,205

Airport use agreement 81,828,358 83,960,259 Property and facilities–net 3,199,995,871 3,026,227,748 Other assets 113,778,169 127,384,040

Total restricted net assets 497,505,159 434,865,836

Unrestricted net assets 24,840,009 65,774,927

TOTAL ASSETS 5,190,387,203$ 5,114,794,201$ TOTAL NET ASSETS 807,538,878$ 833,153,082$

See notes to basic financial statements.

- 13 -


STATEMENTS OF REVENUES, EXPENSES ANDCHANGES IN NET ASSETSYEARS ENDED DECEMBER 31, 2004 AND 2003

2004 2003

OPERATING REVENUES: Landing fees and terminal area use charges (Note 1) 228,275,797$ 291,577,228$ Rents, concessions and other (Note 6) 214,292,852 190,380,189

Total operating revenues 442,568,649 481,957,417

OPERATING EXPENSES (Notes 7 and 8): Salaries and wages 134,889,814 148,860,522 Repairs and maintenance 66,065,910 65,870,060 Professional and engineering services 33,449,196 35,758,798 Other operating expenses 83,424,800 81,060,189

Total operating expenses before depreciation and amortization 317,829,720 331,549,569

Depreciation and amortization 137,660,652 130,753,775

Total operating expenses 455,490,372 462,303,344

OPERATING (LOSS) INCOME (12,921,723) 19,654,073

NONOPERATING REVENUES (EXPENSES): Passenger facility charges revenue 141,732,819 129,324,425 Passenger facility charges expenses (6,468,552) (935,357) Interest income (Note 4) 22,194,264 20,723,158 Interest expense (Note 4) (189,946,412) (174,349,191)

Total nonoperating expenses (32,487,881) (25,236,965)

Loss before capital contributions and operating transfer out (45,409,604) (5,582,892)

CAPITAL GRANTS (Note 1) 19,795,400 8,937,913

CHANGE IN NET ASSETS (25,614,204) 3,355,021

TOTAL NET ASSETS—Beginning of year 833,153,082 829,798,061

TOTAL NET ASSETS—End of year 807,538,878$ 833,153,082$


- 14 -


STATEMENTS OF CASH FLOWSYEARS ENDED DECEMBER 31, 2004 AND 2003

2004 2003

CASH FLOWS FROM OPERATING ACTIVITIES: Landing fees and terminal area use charges 295,131,308$ 300,239,098$ Rents, concessions and other 241,471,069 193,719,740 Payments to vendors (144,331,908) (157,713,020) Payments to employees (140,487,727) (158,206,949) Transactions with other City funds–net (42,895,344) (38,107,858)

Cash flows from operating activities 208,887,398 139,931,011

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from issuance of bonds 393,271,297 1,139,993,147 Net proceeds from bonds and notes payable 32,000 177,372,000 Payments to refund bonds (392,722,075) (555,095,853) Acquisition and construction of capital assets (246,074,350) (202,478,481) Capital grants 9,454,733 9,377,914 Bond issuance costs (6,269,863) (39,229,316) Principal paid on bonds (37,045,000) (33,675,000) Interest paid on bonds and note (220,685,853) (171,928,879) Noise mitigation program (19,171,870) (21,478,111) Passenger facility charges revenues 135,630,358 128,153,800 Passenger facility charges expenses (6,468,552) (935,357)

Cash flows (used in) from capital and related financing activities (390,049,175) 430,075,864

CASH FLOWS FROM INVESTING ACTIVITIES: Sales (purchases) of investments, net 87,933,260 (363,491,422) Investment interest 34,748,020 23,343,395

Cash flows from (used in) investing activities 122,681,280 (340,148,027)

NET CHANGE IN CASH AND CASH EQUIVALENTS (58,480,497) 229,858,848

CASH AND CASH EQUIVALENTS—Beginning of year 829,015,006 599,156,158

CASH AND CASH EQUIVALENTS—End of year 770,534,509$ 829,015,006$

RECONCILIATION TO CASH AND CASH EQUIVALENTS REPORTED ON THE STATEMENTS OF NET ASSETS: Unrestricted 141,928,384$ 96,713,749$ Restricted 628,606,125 732,301,257

TOTAL 770,534,509$ 829,015,006$

See notes to basic financial statements

- 15 -


STATEMENTS OF CASH FLOWS (Concluded)YEARS ENDED DECEMBER 31, 2004 AND 2003

2004 2003

RECONCILIATION OF OPERATING INCOME TO CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Operating (loss) income (12,921,723)$ 19,654,073$ Adjustments to reconcile: Depreciation and amortization 137,660,652 130,753,775 Provision for doubtful accounts 97,337 2,046,130 Operating transfers out Changes in assets and liabilities: Increase in accounts receivable (7,204,310) (2,394,791) Increase in due from other City funds (17,742,807) (Increase) decrease in prepaid expenses (881,478) 1,869,650 Increase (decrease) in accounts payable and due to other City funds 8,641,690 (26,394,038) (Decrease) increase in prepaid terminal rent (409,063) 4,233,530 Increase in deferred revenue 101,647,100 10,162,682

CASH FLOWS FROM OPERATING ACTIVITIES 208,887,398$ 139,931,011$

SUPPLEMENTAL DISCLOSURE OF NONCASH ITEMS: Property additions in 2004 and 2003 of $68,234,552 and $51,107,071, respectively, are included in accounts payable.

The fair market value adjustment to investments for 2004 was a loss of $3,846,000.


- 16 -


NOTES TO BASIC FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization—Chicago O’Hare International Airport (Airport) is operated by the City of Chicago (City) Department of Aviation. The Airport is included in the City’s reporting entity as an Enterprise Fund. The City is a member of the Chicago-Gary Regional Airport Authority, which was created in 1995 to address the air transportation needs of the Chicago-Northwest Indiana Region.

Basis of Accounting and Measurement Focus—The accounting policies of the Airport are based upon accounting principles generally accepted in the United States of America, as prescribed by the Government Accounting Standards Board (GASB). The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. The accounts of the Airport are reported using the flow of economic resources measurement focus.

The Airport uses the accrual basis of accounting, under which revenues are recognized when earned and expenses are recognized when incurred. Enterprise funds may elect to apply Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, provided that such standards are not in conflict with standards issued by the GASB. The Airport has elected not to apply FASB pronouncements issued after November 30, 1989.

Annual Appropriated Budget—The Airport has a legally adopted annual budget which is not required to be reported.

Management’s Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.

Cash, Cash Equivalents and Investments—Cash, cash equivalents and investments generally are held with the City Treasurer as required by the Municipal Code of Chicago (Code). Interest earned on pooled investments is allocated to participating funds based upon their average combined cash and investment balances. Due to contractual agreements or legal restrictions, the cash and investments of certain funds are segregated and earn and receive interest directly.

The Code permits deposits only to City Council-approved depositories which must be regularly organized state or national banks and federal or state savings and loan associations, located within the City, whose deposits are federally insured.

Investments authorized by the Code include interest-bearing general obligations of the City, the State of Illinois (State) and the U.S. Government; U.S. treasury bills and other non-interest-bearing general obligations of the U.S. Government purchased in the open market below face value; domestic money market mutual funds regulated by and in good standing with the Securities and Exchange Commission and tax anticipation warrants issued by the City. The City is prohibited by ordinance from investing in derivatives, as defined, without City Council approval.

- 17 -

The Airport values its investments at fair value or amortized cost as applicable. U.S. Government securities purchased at a price other than par with a maturity of less than one year are reported at amortized cost.

Repurchase agreements can be purchased only from banks and certain other institutions authorized to do business in the State. The City Treasurer requires that securities pledged to secure these agreements have a market value equal to the cost of the repurchase agreements plus accrued interest.

Investments, generally, do not have a maturity in excess of one year from the date of purchase. Certain other investment balances are held in accordance with the specific provisions of the applicable bond ordinances.

Cash equivalents include certificates of deposit and other investments with maturities of three months or less when purchased.

Accounts Receivable Allowance—Management has provided an allowance for amounts recorded at year-end, which may be uncollectible.

Revenues and Expenses—Revenues from landing fees, terminal area use charges, fueling system charges, parking revenue and concessions are reported as operating revenues. Transactions that are related to financing, investing and passenger facility charges are reported as non-operating revenues.Salaries and wages, repair and maintenance, professional and engineering services and other expenses that relate to Airport operations are reported as operating expenses. Interest expense, passenger facility charge expenses and financing costs are reported as non-operating expenses.

Transactions with the City—The City’s General Fund provides services to the Airport. The amounts allocated to the Airport for these services are treated as operating expenses by the Airport and consist mainly of employee benefits, self-insured risks and administrative expenses.

Other Assets—Funds expended for the Noise Mitigation Program are recorded as other assets and amortized over a 20-year useful life on a straight-line basis.

Property and Facilities—Property and facilities are recorded at cost or, for donated assets, at market value at the date of acquisition. Expenditures greater than $5,000 for the acquisition, construction or equipping of capital projects, together with related design, architectural and engineering fees, are capitalized. Expenditures for vehicles and other movable equipment are expensed as incurred.

Depreciation and amortization are provided using the straight-line method and begin in the year following the year of acquisition or completion. Estimated useful lives are as follows:

Runways, aprons, tunnels, taxiways and paved roads 30 yearsWater drainage and sewer system 20-50 yearsRefrigeration and heating systems 30 yearsBuildings 40 yearsElectrical system 15-20 yearsOther 10-30 years

Net Assets—Net Assets are comprised of the net earnings from operating and nonoperating revenues, expenses and capital grants. Net assets are displayed in three components—invested in capital assets, net of related debt; restricted for debt service, capital projects, passenger facility charges, airport use agreement and other requirements; and unrestricted. Invested in capital assets, net of related debt consists of all capital assets, net of accumulated depreciation and reduced by outstanding debt net of debt service reserve and unspent proceeds. Restricted net assets consist of net assets on which

- 18 -

constraints are placed by external parties (such as lenders and grantors), laws, regulations and enabling legislation. Unrestricted net assets consist of all other net assets not categorized as either of the above.

Employee Benefits—Employee benefits are granted for vacation and sick leave, workers’ compensation and health care. Unused vacation leave is accrued and may be carried over for one year. Sick leave is accumulated at the rate of one day for each month worked, up to a maximum of 200 days. Severance of employment terminates all rights to receive compensation for any unused sick leave. Sick leave pay is not accrued. Employee benefit claims outstanding, including claims incurred but not reported, are estimated and recorded as liabilities. The Airport maintains insurance from a commercial carrier for workers compensations claims. Settlements in each of the past three years have been less than insurance coverage maintained.

Employees are eligible to defer a portion of their salaries until future years under the City’s deferred compensation plan created in accordance with Internal Revenue Code Section 457. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. The plan is administered by third-party administrators who maintain the investment portfolio. The plan’s assets have been placed in trust accounts with the plan administrators for the exclusive benefit of participants and their beneficiaries and are not considered assets of the City.

The City is subject to the State of Illinois Unemployment Compensation Act and has elected the reimbursing employer option for providing unemployment insurance benefits for eligible former employees. Under this option, the City reimburses the State for claims paid by the State.

Bond Issuance Costs, Bond Discounts and Refunding Transactions—Bond issuance costs and bond discounts are deferred and amortized over the life of the related debt, except in the case of refunding debt transactions where the amortization period is over the term of the refunding or refunded debt, whichever is shorter.

Capitalized Interest—Interest expense and interest earned on construction bond proceeds is capitalized during construction on those capital projects paid from the bond proceeds and is being amortized over the depreciable life of the related assets on a straight-line basis.

Capital Grants—The Airport reports capital grants as revenue on the Statements of Revenues, Expenses and Changes in Net Assets. Capital grants are on a reimbursement basis and revenues are recognized to the extent of allowable expenditures incurred.

Revenue Recognition—Landing fees, terminal area use charges 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 debt service and fund deposits as determined under provisions of the Amended and Restated Airport Use Agreement and Terminal Facilities Lease and the International Terminal Use Agreement and Facilities Lease (Use Agreements). Incremental amounts due from the airlines arise when amounts assessed, based on the estimated rates used during the year, are less than actual expenses and required deposits for the year. Such incremental amounts due from airlines are included in accrued revenue. Incremental amounts due to the airlines arise when amounts assessed, based on the estimated rates used during the year, exceed actual expenses and required deposits for the year. Such incremental amounts due to airlines are included in deferred revenue.

Passenger Facility Charge (PFC) Revenue—The Airport imposed PFCs of $4.50 per eligible enplaned passenger for the years ended December 31, 2004 and 2003. For 2003, PFCs paid to the Airport are less allowable airline administrative costs of $.08 per eligible enplaned passenger. Beginning May 1, 2004, PFCs paid to the Airport are less allowable airline administrative costs of $.11 per eligible

- 19 -

enplaned passenger. PFCs are available, subject to Federal Aviation Administration regulation and approval, to finance specific eligible capital projects. The City reports PFC revenue as nonoperating revenue and related expenses as nonoperating expenses in conformity with industry practice.

2. RESTRICTED AND UNRESTRICTED CASH AND CASH EQUIVALENTS AND INVESTMENTS

Deposits—Certain Airport deposits at December 31, 2004 and 2003 of $12,560,022 and $424,765, respectively, are deposited with the City Treasurer and are commingled and invested by the Treasurer with deposits from other City funds; accordingly, it is not practical to disclose the related bank balance of such cash deposits for the Airport. The City also maintains other segregated deposits for the Airport. Of the City Treasurer’s total bank balances at December 31, 2004 and 2003, $116,374,512 or 73.2 percent and $182,707,682 or 90.2 percent , respectively, were either insured or collateralized with securities held by City agents in the City’s name. The remaining balances were uninsured and uncollateralized.

Investments—Investments are categorized to give an indication of the level of credit risk. Category 1 includes investments that are insured or registered in the City’s name or the securities were held by the City or its agent in the City’s name. Category 2 includes uninsured or unregistered, with securities held by the counterparty’s trust department or agent in the City’s name. Pooled funds include primarily money market mutual accounts.

The following table provides a summary of investments for the Airport funds at December 31, 2004 and 2003:

RiskDescription Category 2004 2003

U.S. Government obligations 1 903,305,246$ 1,063,432,576$U.S. Government obligations 2 19,860,950 31,442,471

Subtotal 923,166,196 1,094,875,047

Noncategorized—pooled funds N/A 670,270,270 589,354,242

Total 1,593,436,466$ 1,684,229,289$

The following schedule reconciles the carrying value of investments to the basic financial statements:

2004 2003

Restricted investments 798,198,638$ 883,985,528$Unrestricted investments 10,748,209 12,894,578Investments included as cash and cash equivalents on the Statements of Net Assets 784,489,619 787,349,183

Total 1,593,436,466$ 1,684,229,289$

The Airport has entered into several Debt Service Reserve Fund Forward Purchase Agreements. Under these agreements, the Airport will receive specified maturity amounts at specified interest rates, as defined in each agreement, on the required deposits in each debt service reserve fund. During 2004 and

- 20 -

2003, the Airport received $11,449,992 and $11,418,116, respectively, from these agreements, reported as interest earnings.

3. RESTRICTED ASSETS

The General Airport Revenue Bond Ordinance (Bond Ordinance), the Master Indenture of Trust Securing Chicago-O’Hare International Airport Second Lien Obligations (Second Lien Indenture), the Master Indenture of Trust Securing Chicago-O’Hare International Airport Third Lien Obligations (Third Lien Indenture), the Use Agreement and federal regulations contain various limitations and restrictions which, among other things, require the creation and maintenance of separate accounts, certain of which must be held by a trustee and into which required deposits are made by the Airport on a periodic basis to fund construction, debt retirement, operation and maintenance and contingencies.

Restricted cash, cash equivalents and investment balances in accordance with the Bond Ordinance, the Second Lien Indenture and the Third Lien Indenture requirements are as follows:

Account 2004 2003

Construction 539,702,519$ 750,026,836$Capitalized interest 79,865,116 134,106,733Debt service reserve 350,110,251 330,887,650Debt service interest 132,160,042 102,706,855Debt service principal 30,540,093 26,612,142Operation and maintenance reserve 78,795,575 80,958,260Maintenance reserve 3,000,000 3,000,000Emergency reserveOther funds 42,622,969 33,263,797

Subtotal—Bond Ordinance, Second Lien Indenture and Third Lien Indenture accounts 1,256,796,565 1,461,562,273

Passenger facility charge 170,008,198 154,724,512

Total 1,426,804,763$ 1,616,286,785$

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

The debt service reserve account is restricted to the payment of debt service in the event that the balance in the debt service account is insufficient.

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

The operation and maintenance reserve account is restricted to make loans to the operation and maintenance account, as needed, which are to be repaid as funds become available. The maintenance reserve account is restricted to extraordinary maintenance expenditures.

The emergency reserve account is restricted to make payments for certain purposes, including terminal area use charges, landing fees and certain other charges that are deemed uncollectible and also for any judgments or settlements against the Airport. This account is funded annually in accordance with the Use Agreement. The balance is not permitted to exceed $7.5 million.

- 21 -

The City has entered into arbitrage agreements under which the City has agreed to comply with certain requirements of the Internal Revenue Code of 1986, as amended, in order to maintain the exclusion of the interest on the Bonds from the gross income of the recipients thereof for federal income tax purposes. The rebate account relating to each series of the Bonds has been established to account for any liability of the City to make arbitrage rebate payments to the federal government relating to such series of Bonds.

Other funds include the Federal and State Grant Funds, the Special Capital Projects Fund and the Airport Development Fund.

The passenger facility charge account is restricted to fund eligible, approved PFC projects.

At December 31, 2004 and 2003, the Airport was in compliance with the funding requirements and restrictions as stated in the Bond Ordinance, Second Lien Indenture, Third Lien Indenture and IT Indenture.

4. LONG-TERM DEBT

The Bond Ordinance authorizes the issuance of Chicago O’Hare International Airport General Airport Revenue Bonds for financing improvements and expansion of the Airport and to redeem outstanding bonds. Net revenues of the Airport, as defined, are pledged for first lien bond principal and interest payments. The Bond Ordinance further permits the issuance of 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 accounts created under the Bond Ordinance.

First lien, second lien and third lien revenue bonds have been issued under the Bond Ordinance, Second Lien Indenture and Third Lien Indenture, respectively. The Series 1996 Passenger Facility Charge Revenue Bonds have been issued under an ordinance adopted by the City Council on March 26, 1996 and pursuant to the Master Trust Indenture Securing Chicago O’Hare International Airport Passengers Facility Charge Revenue Bonds dated July 1, 1996. The Series 2001 Second Lien Passenger Facility Revenue Bonds have been issued under an ordinance adopted by the City Council on March 28, 2001 and pursuant to the Master Trust Indenture Securing Chicago-O’Hare International Airport Passenger Facility Charge Revenue Bonds dated May 15, 2001.

- 22 -

Revenue Bonds Outstanding - The following summarizes revenue bonds outstanding at December 31, 2004 and 2003:

2004 2003

First Lien Bonds: $324,270,000 1993 Series A first lien revenue refunding bonds issued November 30, 1993, due through 2016; interest rates at 4.8% - 5.0% 264,260,000$ 266,125,000$

Second Lien Bonds: $50,000,000 Series 1984 B second lien bonds issued December 27, 1984, 30,215,000 32,005,000 due through 2015 at variable floating interest rates (1.94% at December 31, 2004)

$25,000,000 Series 1988 B second lien bonds issued December 21, 1988, due through 2018 at variable floating interest rates (2.01% at December 31, 2004) 19,000,000 19,700,000

$152,220,000 1993 Series A and B second lien revenue refunding bonds issued May 26, 1993, due through 2018; interest at 4.6% - 5.75% 320,000

$320,430,000 1993 Series C second lien revenue refunding bonds issued November 30, 1993, due through 2018; interest at 4.9% - 5.75% 284,340,000 320,430,000

$274,940,000 1994 Series A second lien revenue refunding bonds issued November 29, 1994, due through 2015; interest rate at 6.0% - 6.75% 36,990,000 274,940,000

$68,700,000 1994 Series B second lien revenue bonds issued October 12, 1994, due through 2018; variable floating interest rate (2.05% at December 31, 2004) 45,700,000 45,700,000

$83,800,000 1994 Series C second lien revenue bonds issued November 9, 1994, due through 2018; variable floating interest rate (2.00% at December 31, 2004) 56,300,000 56,300,000

$179,625,000 1996 Series A second lien revenue bonds issued October 31, 1996, due through 2018; interest rate at 4.7% - 6.25% 108,445,000 164,290,000

$36,450,000 1996 Taxable Series B second lien revenue bonds issued October 31, 1996, due through 2018; interest rate at 5.96% - 7.1% 14,590,000

$409,850,000 Series 1999 second lien revenue refunding bonds issued October 4, 1999, due through 2018; interest at 5.5% 373,035,000 409,850,000

Subtotal - second lien bonds 954,025,000 1,338,125,000

Third Lien Bonds: $490,515,000 Series 2002 A third lien revenue refunding bonds issued March 20, 2002, due through 2032; interest at 5.25% - 5.75% 490,515,000 490,515,000

$248,910,000 Series 2003 A-1 and A-2 third lien revenue refunding bonds issued August 14, 2003, due through 2034; interest at 4.50% - 6.00% 248,910,000 248,910,000

$382,155,000 Series 2003 B-1 and B-2 third lien revenue bonds issued August 21, 2003, due through 2034; interest at 5.25% - 6.00% 382,155,000 382,155,000

$355,245,000 Series 2003 C-1 and C-2 third lien revenue refunding bonds issued August 21, 2003, due through 2034; interest at 5.25% 355,245,000 355,245,000

$149,330,000 Series 2003 D, E and F third lien revenue bonds issued December 2, 2003, due through 2034; interest at 2.125% - 5.5% 149,330,000 149,330,000

(continued)

- 23 -

2004 2003Third Lien Bonds (Concluded): $281,055,000 Series 2004 A and B third lien revenue refunding bonds issued December 2, 2004, due through 2035; interest at 4.75% - 5.0% 281,055,000$

$39,700,000 Series 2004 C and D third lien revenue refunding bonds issued December 2, 2004, due through 2026; interest at 4.70% - 5.25% 39,700,000

$64,290,000 Series 2004 E, F, G and H third lien revenue refunding bonds issued December 2, 2004, due through 2023; interest at 3.49% - 5.35% 64,290,000

Subtotal - Third Lien Bonds 2,011,200,000 1,626,155,000

Passenger Facility Charge Revenue Bonds: $218,890,000 Series 1996 A Passenger Facility Charge Revenue Bonds issued July 30, 1996, due through 2015; interest at 5.0% - 6.0% 193,815,000 206,230,000

$430,415,000 Series 2001 A and B Passenger Facility Charge Revenue Bonds issued June 19, 2001, due through 2032: interest at 4.0% - 5.75% 423,975,000 430,415,000

$215,065,000 Series 2001 C and D Passenger Facility Charge Revenue Bonds issued August 21, 2001, due through 2032: interest at 3.4% - 5.5% 211,685,000 215,065,000

$54,520,000 Series 2001 E Passenger Facility Charge Revenue Bonds issued October 4, 2001, due through 2018: interest at 3.5% - 5.5% 49,720,000 52,165,000

Subtotal - Passenger Facility Charge Revenue Bonds 879,195,000 903,875,000

Commercial Paper Notes: $ 1,331,000 Series C (Taxable) Commercial Paper Notes outstanding at December 31, 2003, due through 2004; interest at 2.5% 1,363,000 1,331,000

Total revenue bonds and notes 4,110,043,000 4,135,611,000

Less unamortized discount 8,246,597 22,635,875

Less unamortized deferred loss on bond refunding 83,852,294 75,642,723

4,017,944,109 4,037,332,402

Less current portion 60,355,000 37,045,000

Total long-term revenue bonds payable 3,957,589,109$ 4,000,287,402$

(Concluded)

- 24 -

During the years ended December 31, 2004 and 2003, long-term debt changed as follows:

Balance Balance Due WithinJanuary 1, December 31, One

2004 Additions Reductions 2004 Year

Revenue bonds 4,134,280,000$ 385,045,000$ (410,645,000)$ 4,108,680,000$ 60,355,000$Unamortized discount (22,635,875) (4,824) 14,394,102 (8,246,597) Deferred loss on refunding (75,642,723) (14,126,032) 5,916,461 (83,852,294)

Total revenue bonds 4,036,001,402 370,914,144 (390,334,437) 4,016,581,109 60,355,000Commercial Paper 1,331,000 32,000 1,363,000

Total Long-term debt 4,037,332,402$ 370,946,144$ (390,334,437)$ 4,017,944,109$ 60,355,000$

Balance Balance Due WithinJanuary 1, December 31, One

2003 Additions Reductions 2003 Year

Revenue bonds 3,350,080,000$ 1,135,640,000$ (351,440,000)$ 4,134,280,000$ 37,045,000$Unamortized discount (33,757,567) (17,392,834) 28,514,526 (22,635,875)Deferred loss on refunding (72,487,767) (8,462,895) 5,307,939 (75,642,723)

Total revenue bonds 3,243,834,666 1,109,784,271 (317,617,535) 4,036,001,402 37,045,000Commercial Paper 74,510,000 177,372,000 (250,551,000) 1,331,000

Total Long-term debt 3,318,344,666$ 1,287,156,271$ (568,168,535)$ 4,037,332,402$ 37,045,000$

Interest expense capitalized for 2004 and 2003 totaled $36,887,332 and $25,482,790 respectively.Interest income capitalized for 2004 and 2003 totaled $9,783,600 and $6,745,574, respectively. Interest expense includes amortization of the deferred loss on bond refunding for 2004 and 2003 of $5,916,461 and $5,307,939, respectively, $2,387,575 and $3,007,012 amortization of bond discount, respectively and arbitrage expense of $1,652,316 and $3,656,465, respectively.

Issuance of Debt—In December 2004, the Airport sold $281,055,000 of Chicago O’Hare International Airport Third Lien Revenue Refunding Bonds, Series 2004 A and B (Non-AMT), at a $7,610,540 premium. The Bonds have interest rates ranging from 4.75 percent to 5.00 percent and maturity and mandatory redemption dates ranging from January 1, 2007 to January 1, 2035. Certain net proceeds of $279,690,520 together with $7,622,236 transferred from the debt service account established for the Second Lien Bonds were deposited in escrow accounts to partially defease outstanding Series 1994 A Bonds ($237,950,000) and Series 1993 C Bonds ($36,090,000); certain proceeds of $3,818,500 were used to fund debt service reserve requirements; and certain proceeds of $5,140,536 were used to pay the cost of issuance of the bonds. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the refunded debt of $10,003,342 that will be charged to operations over 3 to 4 years using the straight-line method. The advance refunding increased the Airport’s total debt service payments by $107,670,370 and resulted in an economic gain (difference between the present value of the old debt and the new debt service payments) of $12,790,375.

In December 2004, the Airport sold $39,700,000 of Chicago O’Hare International Airport Third Lien Revenue Refunding Bonds, Series 2004 C and D (AMT), at a $620,581 premium. The Bonds have interest rates ranging from 4.70 percent to 5.25 percent and maturity and mandatory redemption dates ranging from January 1, 2019 to January 1, 2026. Certain net proceeds of $39,493,073, together with $4,123,353 transferred primarily from the debt service reserve and debt service accounts established for the Second Lien Bonds, were deposited in escrow accounts to partially defease outstanding Series 1996 A Bonds ($33,960,000) and Series 1999 Bonds ($8,000,000); and certain proceeds of $826,053 were used to pay the cost of issuance of the bonds. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the refunded debt of $1,650,892 that will be charged to operations over 13 to 15 years using the straight-line method. The advance refunding

- 25 -

increased the Airport’s total debt service payments by $5,438,568 and resulted in an economic gain (difference between the present value of the old debt and the new debt service payments) of $1,060,387.

In December 2004, the Airport sold $64,290,000 of Chicago O’Hare International Airport Third Lien Revenue Refunding Bonds, Taxable Series 2004 E, F G and H, at a discount. The Bonds have interest rates ranging from 3.49 percent to 5.35 percent and maturity and mandatory redemption dates ranging from January 1, 2007 to January 1, 2023. Certain net proceeds of $58,717,173, together with $3,074,721 transferred from the debt service accounts established for the Second Lien Bonds, were deposited in escrow accounts to defease a portion of the Series 1996 A Bonds ($18,735,000) and Series 1996 B Bonds ($10,050,000), to defease a portion of the Series 1999 Bonds ($28,815,000); certain proceeds of $3,376,500 were used to fund debt service reserve requirements; and certain proceeds of $978,213 were used to pay the cost of issuance of the bonds. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the refunded debt of $2,471,798 that will be charged to operations over 3 to 13 years using the straight-line method. The advance refunding increased the Airport’s total debt service payments by $28,192,349 and resulted in an economic loss (difference between the present value of the old debt and the new debt service payments) of $3,698,875.

Chicago O’Hare International Airport Commercial Paper Notes, Series C (Taxable)($300,000,000 maximum aggregated authorized) outstanding at December 31, 2004 were $1,363,000 having an interest rate of 2.5 percent with a maturity date of January 3, 2005. Note proceeds may be used to finance portions of the costs of authorized airport projects and to repay the expenses of issuing the notes. An irrevocable letter of credit ($315,000,000) provides for the timely payment of principal and interest on the notes until July 19, 2005. Amounts paid by drawing on the letter of credit shall be reimbursed by the Airport on said day paid; any amounts not reimbursed shall constitute an advance and will bear interest at the greater of the most recent prime rate or the Federal Funds rate plus 0.5 percent (Base Rate). Advances outstanding greater than sixty days will bear interest at the Base Rate plus 1.0 percent beginning on the sixty-first day after such advance is made. At December 31, 2004, there were no outstanding letter of credit advances.

In August 2003, the Airport sold $248,910,000 of Chicago O’Hare International Airport Third Lien Revenue Refunding Bonds, Series 2003A-1 and A-2, at a net premium. The Bonds have interest rates ranging from 4.50 percent to 6.00 percent and maturity dates ranging from January 1, 2013 to January 1, 2034. Certain net proceeds of $225,673,004 were deposited in escrow account to defease all of the outstanding Series 1984A Bonds ($32,000,000) and Series 1988A Bonds ($98,300,000) and to defease a portion of the Series 1993A Bonds ($111,800,000); certain proceeds of $21,801,249 were used to fund debt service reserve requirements; and certain proceeds of $9,689,423 were used to pay the cost of issuance of the bonds. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the refunded debt of $5,764,729 that will be charged to operations over 12 to 15 years using the straight-line method. The advance refunding increased the Airport’s total debt service payments by $237,046,166 and resulted in an economic loss (difference between the present value of the old debt and the new debt service payments) of $20,503,292.

In August 2003, the Airport sold $382,155,000 of Chicago O’Hare International Airport Third Lien Revenue Bonds, Series 2003B-1 and B-2, at a net premium. The Bonds have interest rates ranging from 5.25 percent to 6.00 percent and maturity and mandatory redemption dates ranging from January 1, 2022 to January 1, 2034. Certain net proceeds of $290,477,783 will be used to finance the planning, design, acquisition, construction and equipping of various airport capital projects; certain proceeds of $33,402,911 were used to fund debt service reserve requirements; certain proceeds of $55,288,513 were used to fund capitalized interest deposit requirements and certain proceeds of $14,263,884 were used to pay the cost of issuance of the bonds.

- 26 -

In August 2003, the Airport sold $355,245,000 of Chicago O’Hare International Airport Third Lien Revenue Bonds, Series 2003C-1 and C-2, at a net discount. The Bonds have interest rates at 5.25 percent and maturity and mandatory redemption dates ranging from January 1, 2030 to January 1, 2034. ; Certain net proceeds of $250,803,160 were used to pay all of the outstanding Commercial Paper Notes ($250,551,000); certain proceeds of $28,798,190 were used to fund debt service reserve requirements; certain proceeds of $47,297,912 were used to fund capitalized interest deposit requirements and certain proceeds of $12,834,817 were used to pay the cost of issuance of the bonds.

In December 2003, the Airport sold $149,330,000 of Chicago O’Hare International Airport Third Lien Revenue Bonds, Series 2003D, E and F, at a net premium. The Bonds have interest rates ranging from 2.125 percent to 5.5 percent and maturity and mandatory redemption dates ranging from January 1, 2005 to January 1, 2034. Certain net proceeds of $49,397,805 will be used to finance the planning, design, acquisition, construction of various airport capital projects; certain net proceeds of $78,871,799, together with $2,505,298 transferred from the debt service account established for the First Lien Bonds were deposited in escrow account to defease a portion of outstanding Series 1993A Bonds ($58,145,000) and Series 1993B Bonds ($17,520,000); certain proceeds of $11,178,850 were used to fund debt service reserve requirements; certain proceeds of $9,055,492 were used to fund capitalized interest deposit requirements and certain proceeds of $4,200,672 were used to pay the cost of issuance of the bonds. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the refunded debt of $2,698,166 that will be charged to operations over 12 to 15 years using the straight-line method. The advance refunding increased the Airport’s total debt service payments by $72,112,927 and resulted in an economic gain (difference between the present value of the old debt and the new debt service payments) of $3,667,444.

Chicago O’Hare International Airport Commercial Paper Notes, Series C (Taxable) ($300,000,000 maximum aggregated authorized) outstanding at December 31, 2003 were $1,331,000 having an interest rate of 1.42 percent with a maturity date of January 6, 2004 Note proceeds may be used to finance portions of the costs of authorized airport projects and to repay the expenses of issuing the notes. An irrevocable letter of credit ($315,000,000) provides for the timely payment of principal and interest on the notes until July 19, 2005. Amounts paid by drawing on the letter of credit shall be reimbursed by the Airport on said day paid; any amounts not reimbursed shall constitute an advance and will bear interest at the greater of the most recent prime rate or the Federal Funds rate plus 0.5 percent (Base Rate). Advances outstanding greater than sixty days will bear interest at the Base Rate plus 1.0 percent beginning on the sixty-first day after such advance is made. At December 31, 2003, there were no outstanding letter of credit advances.

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

Year EndingDecember 31 Principal Interest Total

2005 4,435,000$ 13,093,040$ 17,528,040$2006 4,650,000 12,872,675 17,522,6752007 12,758,750 12,758,7502008 12,758,750 12,758,7502009 12,758,750 12,758,7502010–2014 145,800,000 53,082,500 198,882,5002015–2016 109,375,000 5,535,375 114,910,375

Total 264,260,000$ 122,859,840$ 387,119,840$

- 27 -

Following is a schedule of debt service requirements to maturity of the second lien bonds. For issues with variable rates, interest is imputed at the effective rate at December 31, 2004:


2005 27,455,000$ 45,812,206$ 73,267,206$2006 29,785,000 44,163,634 73,948,6342007 11,375,000 42,995,889 54,370,8892008 81,830,000 40,719,398 122,549,3982009 86,205,000 36,439,980 122,644,9802010–2014 358,805,000 123,195,959 482,000,9592015–2018 358,570,000 39,579,523 398,149,523

Total 954,025,000$ 372,906,589$ 1,326,931,589$

The Airport’s second lien variable rate bonds may bear interest from time to time at a flexible rate, a daily rate, a weekly rate, an adjustable long rate or the fixed rate as determined from time to time by the remarketing agent, in consultation with the City. At December 31, 2004 the second lien bonds were in the weekly rate interest mode.

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


2005 2,440,000$ 99,411,892$ 101,851,892$2006 10,475,000 107,075,049 117,550,0492007 61,250,000 105,371,701 166,621,7012008 74,805,000 102,180,008 176,985,0082009 41,255,000 99,476,976 140,731,9762010–2014 32,420,000 490,569,322 522,989,3222015–2019 201,370,000 462,153,364 663,523,3642020–2024 411,455,000 372,525,151 783,980,1512025–2029 543,040,000 242,067,924 785,107,9242030–2034 614,070,000 80,301,969 694,371,9692035 18,620,000 442,225 19,062,225

Total 2,011,200,000$ 2,161,575,581$ 4,172,775,581$

- 28 -

Following is a schedule of debt service requirements to maturity of the Passenger Facility Charge Revenue Bonds:


2005 26,025,000$ 46,764,122$ 72,789,122$2006 27,460,000 45,274,353 72,734,3532007 28,995,000 43,772,795 72,767,7952008 30,460,000 42,219,832 72,679,8322009 32,105,000 40,536,510 72,641,5102010–2014 188,515,000 173,815,224 362,330,2242015–2019 137,270,000 124,906,944 262,176,9442020–2024 125,815,000 92,224,884 218,039,8842025–2029 162,615,000 54,434,877 217,049,8772030–2032 119,935,000 9,705,451 129,640,451

Total 879,195,000$ 673,654,992$ 1,552,849,992$

The Series C (Taxable) Commercial Paper Notes outstanding at December 31, 2004 of $1,363,000 will be refunded with new commercial paper notes as the existing notes mature.

Defeased Bonds—Defeased bonds have been removed from the balance sheet because the related assets have been placed in irrevocable trusts that, together with interest earned thereon, will provide amounts sufficient for payment of all principal and interest. Defeased bonds at December 31, 2004 are as follows:

AmountDefeased Outstanding

Chicago O'Hare International Airport Second Lien Bonds, Series 1993C 36,090,000$ 36,090,000$Chicago O'Hare International Airport Second Lien Bonds, Series 1994A 237,950,000 237,950,000 Chicago O'Hare International Airport Second Lien Bonds, Series 1996A 52,695,000 52,695,000 Chicago O'Hare International Airport Second Lien Bonds, Series 1996B 10,050,000 10,050,000 Chicago O'Hare International Airport Second Lien Bonds, Series 1999 36,815,000 36,815,000

373,600,000$ 373,600,000$

No-commitment Debt—Special Facility Bonds issued in the City’s name by certain airline parties related to airport capital assets are no-commitment debt and not included in the accompanying financial statements as the City has no obligation to provide for their repayment, which is the responsibility of the related airlines.

- 29 -

5. CHANGES IN CAPITAL ASSETS

During the years ended December 31, 2004 and 2003, capital assets changed as follows:

Balance Disposals BalanceJanuary 1, and December 31,

2004 Additions Transfers 2004

Capital assets not depreciated: Land 124,758,250$ 36,644,305$ $ 161,402,555$ Construction in progress 254,695,805 254,935,159 (134,744,438) 374,886,526

Total capital assets not depreciated 379,454,055 291,579,464 (134,744,438) 536,289,081

Capital assets depreciated: Buildings and other facilities 4,045,413,949 134,744,438 4,180,158,387

Less accumulated depreciation for: Buildings and other facilities (1,398,640,256) (117,811,341) (1,516,451,597)

Total capital assets depreciated–net 2,646,773,693 16,933,097 2,663,706,790

Total property and facilities–net 3,026,227,748$ 308,512,561$ (134,744,438)$ 3,199,995,871$

Balance Disposals BalanceJanuary 1, and December 31,

2003 Additions Transfers 2003

Capital assets not depreciated: Land 102,250,894$ 22,507,356$ - $ 124,758,250$ Construction in progress 308,302,971 182,972,131 (236,579,297) 254,695,805

Total capital assets not depreciated 410,553,865 205,479,487 (236,579,297) 379,454,055

Capital assets depreciated: Buildings and other facilities 3,808,936,708 236,477,241 4,045,413,949

Less accumulated depreciation for: Buildings and other facilities (1,285,293,639) (113,346,617) (1,398,640,256)

Total capital assets depreciated–net 2,523,643,069 123,130,624 - 2,646,773,693

Total property and facilities–net 2,934,196,934$ 328,610,111$ (236,579,297)$ 3,026,227,748$

- 30 -

6. LEASING ARRANGEMENTS WITH TENANTS

Most of the Airport’s land, buildings and terminal space are leased under operating lease agreements with airlines and other tenants. The following is a schedule of the minimum future rental income on noncancelable operating leases as of December 31, 2004:

December 31 Amount

2005 62,119,183$2006 40,222,1772007 32,828,9112008 31,823,6242009 30,762,4482010-2014 92,260,4862015-2019 75,850,0832020-2024 8,144,0082025-2029 9,432,7742030-2033 7,651,030

Total minimum future rental income 391,094,724$

Year Ending

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

Rental income, consisting of all rental and concession revenues except ramp rentals and automobile parking, amounted to approximately $289,767,665 and $259,773,924 in 2004 and 2003, respectively. Contingent rentals included in the totals were approximately $48,383,840 and $41,571,776 and for 2004 and 2003, respectively.

7. PENSION PLANS

Eligible Airport employees participate in one of two of the City’s single-employer defined benefit pension plans. These plans are the Municipal Employees’ and the Laborers’ and Retirement Board Employees’ Annuity and Benefit Funds. These plans are administered by individual retirement boards represented by elected and appointed officials. Each plan issues publicly available financial statements for each of the pension plans which may be obtained at the respective fund’s office.

The funds provide retirement and death and disability benefits as established by State law. Benefits generally vest after 20 years of credited service. Employees who retire at or after age 55 with at least 10 years of credited service qualify to receive a money purchase annuity and those with more than 20 years of credited service qualify to receive a minimum formula annuity. The annuity is computed by multiplying the final average salary by a minimum of 2.4 percent per year of credited service. The final average salary is the employee’s highest average annual salary for any four consecutive years within the last 10 years of credited service.

Participating employees contribute 8.5 percent of their salary to these funds as required by State law. By law, the City’s contributions are based on the amounts contributed by the 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 pension cost applicable to the covered payroll of O’Hare Fund employees. These reimbursements, recorded as expenses of the

- 31 -

O’Hare Fund, were $13,001,617 in 2004 and $14,003,026 in 2003. The annual pension costs are determined using the entry age actuarial cost method and the level dollar amortization method.

The funding policy mandated by State law requires City contributions at statutorily, not actuarially, determined rates. The rates are expressed as multiples of employee contributions. These contributions equal employee contributions made in the calendar year two years prior multiplied by the statutory rates. The statutory rates in effect for the City’s contributions made during the years ended December 31, 2004 and 2003 were 1.25 for the Municipal Employees’ and 1.00 for the Laborers’ and Retirement Board Employees’ Annuity and Benefit Funds, respectively. The City has made the required contributions under State law.

The following table as of December 31, 2004 assists users in assessing each fund’s progress in accumulating sufficient assets to pay benefits when due. The three-year historical information for each annuity and benefit fund will be accumulated over the next year (dollars in thousands):

Percent of Percent ofAnnual Required Net

Annual Pension Cost Required Contributions PensionPension Cost Contributed Contribution Contributed Assets

Municipal Employees’ 2002 91,960 142.4 % 92,712 141.3 % 358,776 2003 157,771 89.9 158,615 89.5 342,888 2004 197,393 78.0 198,199 77.7 299,415

Laborers’ 2002 (15,477) N/A N/A N/A 270,871 2003 (6,642) N/A N/A N/A 277,880 2004 7,860 2.58 8,513 2.4 270,223

The pension benefits information pertaining expressly to Airport employees is not available. Accordingly, no amounts have been recorded in the accompanying financial statements for the net pension assets of these Plans.

In addition to providing pension benefits, under State law, the City provides certain health benefits to employees who retire from the City based upon their participation in the City’s pension plans. Substantially all employees who qualify as Municipal Employees’ or Laborers’ pension plan participants older than age 55 with at least 20 years of service may become eligible for post-employment benefits if they eventually become annuitants. Health benefits include basic benefits for annuitants and supplemental benefits for Medicare-eligible annuitants. Currently, the City does not segregate benefit payments to annuitants by fund. The cost of health benefits is recognized as claims are reported and funded on a pay-as-you-go basis. The total cost to the City for providing health benefits to approximately 23,902 and 22,348 annuitants and their dependents was approximately $70,900,000 and $81,200,000 in 2004 and 2003, respectively.

All annuitants who retire in 2004 received a 55 percent subsidy from the City for the gross cost of retiree health care under a court approved settlement agreement. The pension funds contributed $55 for each Medicare eligible annuitant and $85 for each non-Medicare eligible annuitant to their gross cost. The annuitants contributed a total of approximately $55,435,070 in 2004 to the gross cost of their retiree health care pursuant to premium amounts set forth in the above-referenced settlement agreement.

- 32 -

8. RELATED PARTY TRANSACTIONS

Included in operating expenses 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 reimbursements amounted to $54,136,000 and $57,721,000 in 2004 and 2003, respectively.

9. COMMITMENTS AND CONTINGENCIES

In 1997, the City settled a lawsuit relating to the City’s program to soundproof homes in the vicinity of the Airport (Program). In the settlement, the City agreed to expand the 1997 phase of the Program to include an additional 344 homes, at a cost of approximately $11,300,000, in addition to 624 homes already planned for that year. For the 2000 phase of the Program, the City agreed to soundproof 850 homes, at an estimated cost of $28,000,000, which was completed in 2001. The settlement agreement provided that any residential soundproofing projects must be allocated proportionately through 2000 among various communities.

In addition to the matters described above, the Airport has certain other contingent liabilities resulting from litigation, claims and commitments incident to its ordinary course of business. Management expects that the final resolution of these contingencies will not have a material adverse effect on the financial position or results of operations of the Airport.

In conjunction with financing the acquisition of the military base, the City and signatory airlines agreed to suspend certain airline fund contribution requirements of the Use Agreement. The City to date has paid $103,151,712 representing the total amount due for the acquisition of approximately 350 acres of Air Force property. The City has obtained fee simple interest to approximately 8 acres of the property. The title to the remainder of the property will be conveyed at such time as environmental investigations and remediations have been completed, and a “finding of suitability to transfer” has been issued with the concurrence of the United States Environmental Protection Agency and the Illinois Environmental Protection Agency, anticipated to occur by December 31, 2004.

The Airport provides employee health benefits under a self-insurance program, administered by the City. Such claims outstanding, including claims incurred but not reported, are estimated and recorded as liabilities in the financial statements.

Uninsured claim expenditures and liabilities are reported when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. These losses include an estimate of claims that have been incurred but not reported. Changes in the claims liability amount for the years ended December 31, 2004 and 2003 are as follows:

2004 2003

Beginning balance at January 1 1,781,120$ 1,813,712$

Total claims incurred (expenditures) 16,249,657 17,505,767Claims paid (16,306,941) (17,538,359)

Claims liability at December 31 1,723,836$ 1,781,120$

The City purchases annuity contracts from commercial insurers to satisfy certain liabilities. The City renewed its property insurance for the City’s Airports, effective December 31, 2004, at a limit of 2.8 billion dollars. Claims have not exceeded the purchased insurance coverage in the past four years.

- 33 -

Accordingly, no liability is reported for those claims. Property and casualty risks for the Airport are transferred to commercial insurers.

At December 31, 2004 and 2003, the Airport had commitments in the amounts of approximately $219,582,000 and $252,466,000, respectively, in connection with contracts entered into for construction projects.

10. SUBSEQUENT EVENTS

The Airport issued $90,000,000 of commercial paper during the second quarter of 2005 to fund ongoing capital program requirements at the Airport.

* * * * * *

- 34 -


ADDITIONAL INFORMATIONFIRST AND SECOND LIEN GENERAL AIRPORT REVENUE BONDSCALCULATIONS OF COVERAGEYEAR ENDED DECEMBER 31, 2004

NET REVENUES FOR CALCULATION OF COVERAGE: Change in net assets (25,614,204)$ Capital grants (19,795,400) Passenger facility charges (135,264,267)

(180,673,871)

ADJUSTMENTS: Interest on bonds 218,529,708 Interest capitalized for financial reporting purposes (27,103,732)

191,425,976 Change in net assets of the Land Support area—net of amount to be deposited in the Revenue Fund (10,670,000) Revenue Fund balance at January 1, 2004 51,204,372 Depreciation and amortization of sound proofing, bond discount, financing fees and loss on refunding 145,964,679 Income earned on Airport Development, Emergency Reserve and Construction Funds (13,462,799)

NET REVENUES FOR CALCULATION OF COVERAGE 183,788,357$

COVERAGE REQUIREMENT: Required deposits from revenues: Operation and maintenance reserve 2,162,685$ Maintenance reserve 1,368,270

Special capital projects 395,000

Total fund deposit requirements 3,925,955

Aggregate first and junior debt service for the bond year 116,931,894 1.10

128,625,083 Less amounts transferred from capitalized interest accounts

Net debt service required 128,625,083

COVERAGE REQUIREMENT 132,551,038$

COVERAGE RATIO: Net revenues for calculation of coverage 183,788,357$ Total fund deposit requirements (3,925,955)

NET REVENUES 179,862,402$

AGGREGATE DEBT SERVICE FOR THE BOND YEAR 116,931,894$

COVERAGE RATIO 1.54

See notes to Calculations of Coverage.

- 35 -


ADDITIONAL INFORMATION FIRST AND SECOND LIEN GENERAL AIRPORT REVENUE BONDS NOTES TO CALCULATIONS OF COVERAGE YEAR ENDED DECEMBER 31, 2004

1. RATE COVENANT

The 1983 General Airport Revenue Bond Ordinance (Ordinance) requires that revenues in each fiscal year in which bonds are outstanding shall equal an amount at least sufficient to produce net revenues for calculation of coverage, as defined, of not less than an aggregate amount equal to the greater of (a) the sum of (i) the amounts required to be deposited for such fiscal year in the first lien Debt Service Reserve Fund, the Operation and Maintenance Reserve Fund, the Maintenance Reserve Fund, the Special Capital Projects Fund and the Junior Lien Obligation Debt Service Fund, and (ii) one and twenty-five hundredths times the aggregate first lien debt service for the bond year commencing during such fiscal year reduced by an amount equal to any amount held in any capitalized interest account for disbursement during such bond year to pay interest on first lien bonds; and (b) the sum of (i) the amounts required to be deposited for such fiscal year in the first lien Debt Service Reserve Fund, the Operation and Maintenance Reserve Fund, the Maintenance Reserve Fund, the Special Capital Projects Fund and the Junior Lien Obligation Debt Service Fund (exclusive of deposits in respect of Aggregate Second Lien Debt Service), and (ii) one and ten hundredths (1.10 x) times the aggregate first lien and second lien debt service for the bond year commencing during such fiscal year reduced by an amount equal to the sum of any amount held in any capitalized interest account for disbursement during such bond year to pay interest on first lien bonds and any amount held in any capitalized interest account established pursuant to a supplemental indenture for disbursement during such bond year to pay interest on second lien bonds.

2. REVENUE FUND BALANCE

The Revenue Fund balance includes all cash, cash equivalents and investments held in any Airport account which were available to the Revenue Fund to satisfy the coverage requirement under the terms of the Bond Ordinance.

* * * * * *

- 36 -


ADDITIONAL INFORMATIONTHIRD LIEN GENERAL AIRPORT REVENUE BONDSCALCULATIONS OF COVERAGEYEAR ENDED DECEMBER 31, 2004

REVENUES: Total revenues–as defined 447,168,627$ Other available moneys (passenger facility charges) 5,124,266 Cash balance in Revenue Fund on the first day of fiscal year (Note 2) 51,204,372

TOTAL REVENUES 503,497,265$

COVERAGE REQUIREMENTS: Required deposits from revenues: Operation and maintenance reserve 2,162,685$ Maintenance reserve 1,368,270 Special capital projects 395,000 First lien obligation debt service fund 17,634,480 Junior lien obligation debt service fund 99,297,414 Third lien obligation debt service fund 52,944,038

TOTAL FUND DEPOSITS REQUIRED 173,801,887$

Aggregate first lien, junior lien and third lien debt service 209,423,349$ Less amounts transferred from capitalized interest accounts (37,990,000)

Net aggregate debt service 171,433,3491.10

NET DEBT SERVICE REQUIRED 188,576,684$

OPERATION AND MAINTENANCE EXPENSES—As defined 314,778,720$

COVERAGE REQUIREMENT (Greater of total fund deposit requirements or 110 percent of aggregate debt service) 188,576,684

TOTAL COVERAGE REQUIRED 503,355,404$

TOTAL REVENUES 503,497,265$

COVERAGE RATIO 1.00

See notes to Calculations of Coverage.

- 37 -


ADDITIONAL INFORMATION THIRD LIEN GENERAL AIRPORT REVENUE BONDS NOTES TO CALCULATIONS OF COVERAGE YEAR ENDED DECEMBER 31, 2004

1. RATE COVENANT

The Master Indenture of Trust securing Chicago O’Hare International Airport Third Lien Obligations requires that Revenues in each Fiscal Year, together with Other Available Moneys deposited with the Trustee with respect to that Fiscal Year and any cash balance held in the Revenue Fund on the first day of that Fiscal Year not then required to be deposited in any Fund or Account, will be at least sufficient: (i) to provide for the payment of Operation and Maintenance Expenses for the Fiscal Year; and (ii) to provide for the greater of (a) the sum of the amounts needed to make the deposits required to be made pursuant to all resolutions, ordinances, indentures and trust agreements pursuant to which all outstanding First Lien Bonds, Second Lien Obligations, Third Lien Obligations or other Airport Obligations are issued and secured, and (b) one and ten-hundredths times Aggregate First, Second and Third Lien Debt Service for the Bond Year commencing during that Fiscal Year, reduced by any proceeds of Airport Obligations held by the Trustee for disbursement during that Bond Year to pay principal of and interest on First Lien Bonds, Second Lien obligations or Third Lien obligations.

The City further covenants that it will fix and establish, and revise from time to time whenever necessary, the rentals, rates and other charges for the use and operation of the Airport and for services rendered by the City in the operation of it in order that Revenues in each Fiscal Year, together with Other Available Moneys consisting solely of: (i) any passenger facility charges deposited with the Trustee for that Fiscal Year, and (ii) any other moneys received by the City in the immediately prior Fiscal year and deposited with the Trustee no later than the last day of the immediately prior Fiscal Year, will be at least sufficient: (i) to provide for the payment of Operation and Maintenance Expenses for the Fiscal Year, and (ii) to provide for the payment of Aggregate First, Second and Third Lien Debt Service for the Bond Year commencing during that Fiscal Year reduced by any proceeds of Airport Obligations held by the Trustee for disbursement during the Bond Year to pay the principal of and interest on First Lien Bonds, Second Lien Obligations or Third Lien Obligations.

2. REVENUE FUND BALANCE

The Revenue Fund balance includes all cash, cash equivalents and investments held in any Airport account which were available to the Revenue Fund to satisfy the coverage requirement under the terms of the Bond Ordinance.

* * * * * *

APPENDIX E

REPORT OF THE AIRPORT CONSULTANT

APPENDIX E

City of ChicagoChicago O’Hare International Airport

General Airport Third Lien Revenue Refunding Bonds, Series 2005 General Airport Third Lien Revenue Bonds, Series 2005

Report of the Airport Consultant

Ricondo & Associates, Inc. 20 North Clark Street, Suite 1500

Chicago, Illinois 60602 312.606.0611 telephone 312.606.0706 facsimile

E-1


E-2

20 NORTH CLARK STREET, SUITE 1500, CHICAGO, ILLINOIS 60602 Telephone (312) 606-0611 Facsimile (312) 606-0706

CHICAGO CINCINNATI MIAMI SAN ANTONIO SAN FRANCISCO WASHINGTON, D.C.

December 14, 2005

Ms. Rosemarie S. Andolino Mr. Patrick J. Harney Executive Director Acting Commissioner O’Hare Modernization Program City of Chicago 8755 W. Higgins Road, Suite 710 Department of Aviation Chicago, IL 60631 Chicago O’Hare International Airport

Terminal 2 Mezzanine Chicago, IL 60666

Re: City of Chicago

General Airport Third Lien Revenue Refunding Bonds, Series 2005

General Airport Third Lien Revenue Bonds, Series 2005

Appendix E: Report of the Airport Consultant

Dear Ms. Andolino and Mr. Harney:

This report sets forth the findings, assumptions, and projections of the air traffic and financial analyses developed by Ricondo & Associates, Inc. (R&A), in conjunction with the planned issuance by the City of Chicago (City) of its General Airport Third Lien Revenue Refunding Bonds, Series 2005, and its General Airport Third Lien Revenue Bonds, Series 2005 (collectively, the Series 2005 Bonds) for capital improvements at Chicago O’Hare International Airport (Airport or O’Hare). This report contains certain financial projections required as a condition precedent to issuing the Series 2005 Bonds under the City’s Third Lien Indenture. This report is intended for inclusion in the Official Statement for the Series 2005 Bonds as Appendix E, Report of the Airport Consultant. All capitalized terms in this report are used as defined in the Official Statement, except as otherwise defined herein.

The Airport serves as a key component in the U.S. air transportation system with the third busiest origin-destination (O&D) market in the nation as well as the third largest population base in the nation. On the basis of the assumptions and analyses described in this report and the aforementioned Airport characteristics, R&A is of the opinion that sufficient revenues will be generated to pay the Airport’s Operation and Maintenance (O&M) Expenses, Debt Service, and fund deposit requirements during the projection period from 2005 through 2014 through a combination of airline rates and charges and non-airline revenue sources. Airline rates and charges are projected to be reasonable on an airline cost per enplaned passenger basis compared to other large-hub U.S. airports.

Series 2005 Bonds

The Series 2005 Bonds will provide funds, along with other available Airport funds, to (1) fund a portion of the costs of the O’Hare Modernization Program (OMP) Phase 1 Projects (as defined in this report), (2) refund certain General Airport Revenue Bonds (GARBs) issued by the City to fund certain Airport capital projects, (3) refund commercial paper used to fund certain OMP-Phase 1 Projects, (4) fund capitalized interest on the

E-3

Ms. Rosemarie S. Andolino and Mr. Patrick J. Harney City of Chicago December 14, 2005 Page 2

Series 2005 Bonds, (5) fund the Debt Service Reserve Fund requirement with respect to the Series 2005 Bonds, and (6) pay the costs of issuing the Series 2005 Bonds.

Air Traffic and Financial Analyses

R&A’s examinations of the underlying economic base of the Airport’s air trade area; historical and projected air traffic at the Airport; description of existing Airport facilities, including a summary of the capital projects; and projected revenues and expenses are presented in this report for the period from 2005 through 2014.

Findings of these analyses include the following:

Role of the Airport

Key Component of the U.S. Air Transportation System. The Airport is a key component in the U.S. air transportation system, offering more connections to more cities than any other airport in the world. It serves the third largest O&D passenger market in the nation, is near the center of the United States, has airport facilities to accommodate domestic and international passengers, and is the only major dual hub airport in the United States.

World’s Busiest Airport in Terms of Operations. Based on statistics from Airports Council International, the Airport ranked first worldwide in total aircraft operations in 2004, second worldwide in total passengers, and 14th worldwide in total cargo. In 2004, the Airport had 992,427 operations, served 75.1 million total passengers or approximately 206,000 total passengers each day, and handled 1.7 million tons of cargo. The level of passengers, operations, and cargo tons reached in 2004 was the highest recorded annual level for each of these categories in the Airport’s history. The Airport has ranked first worldwide in total aircraft operations in 40 of the last 43 years and first worldwide in total passengers in 36 of the last 43 years.

Third Busiest O&D Market in the Nation. Based on U.S. Department of Transportation survey data, the Airport was ranked third in domestic O&D passengers in 2004, following Los Angeles International and McCarran International (Las Vegas) Airports. As a result, passenger activity at the Airport is not as dependent upon the air service level decisions of its hub carriers as its status as a major dual hub might suggest. In 2004, O&D passengers were approximately 45 percent of total enplaned passengers or 16.8 million of 37.4 million enplaned passengers.

Large Number of Domestic Airlines. The Airport serves as an important O&D market for United Airlines (United), American Airlines (American), and the other passenger airlines serving the Airport. Passenger service is provided at the Airport by 13 of the nation’s 16 major passenger airlines, which represent the largest FAA-defined group of passenger airlines in terms of their total annual revenues.

Natural Location for Hubbing Operations. The location of the Chicago Region (as defined in this report) along the heavily traveled east/west air routes and its large population base make it a

E-4


natural location for airline hubbing operations. United and American, the world’s two largest airlines in terms of revenue passenger miles as of December 31, 2004, operate major connecting hubs at the Airport. United, American and their regional/commuter partners enplaned 18.2 million and 13.6 million passengers, respectively, at the Airport in 2004, which represented a combined 84.9 percent of total enplaned passengers at the Airport.

Economic Base for Air Transportation

Third Largest Population Base in the Nation. The Chicago Region has a substantial population base with approximately 9.5 million residents in 2004. It is the third largest region in terms of population in the United States.

Population Growth Projections Comparable to Midwest but Less than Nation. Population in the Chicago Region increased at a compounded annual growth rate of 1.0 percent between 1990 and 2004, compared with 0.7 percent for the Midwest and 1.2 percent nationwide. Between 2004 and 2015, population in the Chicago Region is conservatively projected to increase at a rate comparable to that for the Midwest, but less than that for the nation.

Third Wealthiest Metropolitan Statistical Area in the Nation. The Chicago Region includes the nation’s third wealthiest metropolitan statistical area in terms of total effective buying income (EBI). Per capita EBI for the Chicago Region was consistently higher than that for the Midwest and for the nation between 1999 and 2004. In 2004, the Chicago Region had a significantly higher percentage of households with an EBI of $50,000 or more compared to the Midwest and the nation. This significantly higher percentage of higher income households within the Chicago Region provides the Airport with strong local demand for air travel.

Unemployment Rates Comparable to the Midwest and the Nation. Average annual unemployment rates for the Chicago Region generally ranged near the unemployment rates for the Midwest and the nation each year between 1994 and 2004. With the exception of 2002 and 2003, the Chicago Region’s labor force increased each year during this same period.

Diversified Economy. On a percentage basis, the sectors of nonagricultural employment in the Chicago Region were generally similar to those of the nation in 2004, providing the area with an economic base as diversified as the national economy. The broad base of employment within major industry sectors provides the Chicago Region with a buffer against the inevitable periodic downturns in the economy.

Large Number of Fortune 500 Companies Stimulates Demand for Business Travel. Twenty-eight companies in the Chicago Region were listed in top 500 by Fortune as companies with the highest annual revenues in the United States in 2004, the second highest number of companies for any region in the United States.

E-5


Significant Tourism Stimulates Demand for Leisure Travel. The travel and tourism industry is one of the largest services industry employers in the Chicago Region. The Chicago Region offers a variety of cultural, recreational, and educational resources and activities that are attractive to both residents and tourists. Approximately 32 million people traveled to Chicago in 2004.

Conclusion. The economic base of the Chicago Region is stable and diversified, and is capable of generating the projected increases in demand for air transportation at the Airport during the projection period. In addition, the geographic location of the Airport, as well as the large population base in the Chicago Region, should continue to make the Airport an ideal and natural location for airline hub operations, and provide continued growth in passengers.

Air Traffic

Large Number of Worldwide Passenger Airlines and Cargo Airlines. As of October 2005, the Airport had scheduled passenger service by 24 U.S. flag airlines, scheduled and nonscheduled passenger service by 28 foreign-flag airlines, and nonscheduled passenger service by 5 charter airlines. In addition, 23 all-cargo airlines provided service at the Airport.

Record-Breaking Year in 2004. Total enplaned passengers at the Airport increased 4.6 percent in 2003 and 8.7 percent in 2004, resulting in a record high 37.4 million total enplaned passengers in 2004. By comparison, total enplaned passengers nationwide increased 2.6 percent in 2003 and 7.2 percent in 2004. Previously, the Airport experienced 2 years of decreasing numbers of enplaned passengers in 2001 and 2002, during a period that included the terrorist attacks of September 2001 and the nationwide economic slowdown. These results followed strong growth in the latter half of the 1990s, with the total number of enplaned passengers at the Airport increasing from 32.8 million in 1994 to 35.7 million in 2000.

Nonstop Service Provided to Significant Number of O&D Markets. During a typical week in October 2005 (October 10, 2005 through October 16, 2005), air carriers provided nonstop service from the Airport to each of its top 50 domestic O&D markets. The carriers also provided scheduled nonstop service to 22 of the Airport’s top 25 international O&D markets and 33 of the Airport’s top 50 O&D international markets during this same period.

Financial Analysis

Residual Rate-Making Methodology. The Airport Use Agreements specify a residual rate-making methodology for the calculation of airline rates and charges. Generally, total operating and maintenance expenses and debt service (including coverage) are calculated for each cost-revenue center and offset by nonairline revenues.

Financial Projections. The financial projections from 2005 through 2014 demonstrate the City’s ability to meet the requirements of the Rate Covenant after taking into account Debt Service on the Series 2005 Bonds. The financial projections also include the effects of the annual

E-6


incremental O&M Expenses associated with the airfield improvements of OMP-Phase 1. The City’s Department of Aviation does not anticipate any incremental O&M Expenses associated with the 5-Year Capital Improvement Program.

Debt Service Coverage. The Debt Service coverage requirement of 1.10 is projected to be met in each year of the projection period from 2005 through 2014.

Projected Airline Cost per Enplaned Passenger – Base Projection. The projected airline cost per enplaned passenger is projected to increase from $9.02 in 2005 to $16.21 in 2014, in escalated dollars.

Projected Airline Cost per Enplaned Passenger – Sensitivity Projection. In addition to the base financial projection, a sensitivity analysis was performed. The sensitivity analysis assumes that United and its regional/commuter partners cease service at the Airport, and a projection of enplanements was developed based on the resultant reduction in service. Given the assumptions later described in this report, the projected airline cost per enplaned passenger for the sensitivity projection increases from $9.02 in 2005 to a high of $17.13 in 2007 and 2011 and decreases to $16.21 in 2014, in escalated dollars.

Payment of Debt Service. Table 5.9 in Chapter 5 of this report presents the calculations of non-airline revenue sources and airline rates and charges to pay O&M Expenses, Debt Service, and fund deposits requirements. The resultant Debt Service coverage ratio is also presented.

The techniques and methodologies used in preparing this report are consistent with industry practices for similar studies in connection with airport revenue bond sales. While R&A believes that the approach and assumptions used are reasonable, some assumptions regarding future trends and events detailed in this report including, but not limited to, implementation schedule and enplanement projections may not materialize. Achievement of the projections presented in this report, therefore, is dependent upon the occurrence of future events, which cannot be assured, and the variations may be material.

Sincerely,

RICONDO & ASSOCIATES, INC.

E-7


City of Chicago


Report of the Airport Consultant December 14, 2005 E-8

TABLE OF CONTENTS

Role of the Airport.................................................................................................................................... E-13

1.1 Chicago O’Hare International Airport ................................................................................. E-13 1.2 Other Area Airports.............................................................................................................. E-20

Economic Base for Air Transportation ..................................................................................................... E-25

2.1 Summary .............................................................................................................................. E-25 2.2 Air Trade Area ..................................................................................................................... E-26 2.3 Population ............................................................................................................................ E-26 2.4 Income.................................................................................................................................. E-29 2.5 Employment ......................................................................................................................... E-29 2.6 Economic Base..................................................................................................................... E-34

Air Traffic ................................................................................................................................................. E-49

3.1 Airlines Serving the Airport ................................................................................................. E-493.2 Historical Airport Activity ................................................................................................... E-533.3 Factors Affecting Aviation Demand .................................................................................... E-63 3.4 Projected Airport Activity .................................................................................................... E-74

Airport Facilities and Development.......................................................................................................... E-81

4.1 Existing Airport Facilities .................................................................................................... E-814.2 Capital Development Programs Included in the Master Plan .............................................. E-84 4.3 Approved Portions of the Capital Development Programs .................................................. E-90

Financial Analysis .................................................................................................................................... E-97

5.1 Financial Structure ............................................................................................................... E-97 5.2 Financing Plan...................................................................................................................... E-100 5.3 Operation and Maintenance Expenses Projections .............................................................. E-102 5.4 Non-Signatory Airline and Non-Airline Revenues .............................................................. E-105 5.5 Debt Service ......................................................................................................................... E-109 5.6 Fund Deposit Requirements ................................................................................................. E-1115.7 Net Signatory Airline Requirement...................................................................................... E-111 5.8 Calculation of Airline Parties’ Airport Fees and Charges.................................................... E-114 5.9 Airline Revenue.................................................................................................................... E-116 5.10 Debt Service Coverage......................................................................................................... E-1165.11 Airline Cost per Enplaned Passenger ................................................................................... E-116 5.12 Sensitivity Analysis.............................................................................................................. E-120

5.13 Assumptions for Financial Projections................................................................................. E-121

City of Chicago



LIST OF TABLES

Table No.

1.1 Top 15 Worldwide Ranking of Activity - 2004 ............................................................................ E-14 1.2 Comparison of Top U.S. Gateway Airports ................................................................................... E-15 1.3 Historical Originating and Connecting Enplanements ................................................................... E-17 1.4 Average Domestic One-Way Fares at Top 10 O&D U.S. Large-Hub Airports ............................. E-18 1.5 Average Domestic One-Way Yields at Top 10 O&D U.S. Large-Hub Airports ........................... E-19

2.1 Historical and Projected Population ............................................................................................... E-28 2.2 Age Distribution - U.S. Census 2000 ............................................................................................. E-30 2.3 Educational Attainment - U.S. Census 2000 .................................................................................. E-312.4 Effective Buying Income................................................................................................................ E-32 2.5 Civilian Labor Force and Unemployment Rates ............................................................................ E-33 2.6 Employment Trends by Major Industry Division........................................................................... E-35 2.7 Chicago Region’s Major Employers - August 2005 ...................................................................... E-36 2.8 Chicago Region’s Fastest Growing Public Firms - 2004 ............................................................... E-37 2.9 Residential Building Permit Units and Valuations......................................................................... E-39 2.10 Total Retail Sales............................................................................................................................ E-43 2.11 Total Bank Deposits ....................................................................................................................... E-44

3.1 Airlines Serving the Airport ........................................................................................................... E-50 3.2 Scheduled U.S. Flag Air Carrier Base............................................................................................ E-51 3.3 Foreign Flag Air Carrier Base ........................................................................................................ E-52 3.4 Historical Enplaned Passengers...................................................................................................... E-54 3.5 Historical Total Enplaned Passengers by Airline .......................................................................... E-563.6 Domestic O&D Passenger Markets - 2004 .................................................................................... E-573.7 Scheduled Nonstop Activity for U.S. Flag and Foreign Flag Carriers ........................................... E-58 3.8 International O&D Passenger Markets - 2002 ............................................................................... E-593.9 Historical Aircraft Operations ........................................................................................................ E-61 3.10 Historical Landed Weight by Airline ............................................................................................. E-64 3.11 Historical Enplaned and Deplaned Cargo ...................................................................................... E-65 3.12 Historical Enplaned and Deplaned Cargo by Airline ..................................................................... E-663.13 Enplanement Projections ................................................................................................................ E-76 3.14 Aircraft Operations Projections ...................................................................................................... E-77 3.15 Landed Weight Projections ............................................................................................................ E-79

4.1 Costs of Capital Development Programs........................................................................................ E-91

5.1 Costs of Capital Development Programs - Estimated Project Costs and Sources of Funds .......... E-101 5.2 Operation and Maintenance Expenses............................................................................................ E-1045.3 Non-Signatory Airline Revenue and Non-Airline Revenue........................................................... E-107 5.4 Annual Net Debt Service Requirements......................................................................................... E-1105.5 Fund Deposit Requirements ........................................................................................................... E-112 5.6 Net Signatory Airline Requirement ................................................................................................ E-113 5.7 Airline Fees, Rentals and Charges.................................................................................................. E-115 5.8 Airline Revenue.............................................................................................................................. E-117 5.9 Debt Service Coverage ................................................................................................................... E-118 5.10 Airline Cost per Enplaned Passenger ............................................................................................. E-119 5.11 Airline Cost per Enplaned Passenger - Sensitivity Projection .............................. . . .................... E-122

City of Chicago



LIST OF EXHIBITS

Exhibit No.

1.1 Nonstop Domestic Markets ............................................................................................................ E-21 1.2 Nonstop International Markets ....................................................................................................... E-22

2.1 Chicago Region .............................................................................................................................. E-27

4.1 Existing Airport Layout.................................................................................................................. E-82 4.2 Operating Configurations - Existing Airfield................................................................................. E-834.3 O’Hare Modernization Program - Runway Configuration............................................................. E-87 4.4 Operating Configurations - Completion of OMP ........................................................................... E-88 4.5 Operating Configurations - Completion of OMP-Phase 1 ............................................................. E-89

5.1 Application of Revenues - While First Lien Bonds Are Outstanding ............................................ E-99

City of Chicago




City of Chicago



Role of the Airport

Chicago O’Hare International Airport (Airport or O’Hare) is the busiest airport worldwide in terms of total aircraft operations. With its proximity to the center of the United States, airport facilities to accommodate domestic and international passengers, and its unique status as the only major dual hub airport in the United States, it is a key component of the U.S. air transportation system and offers more connections to more cities than any other airport in the world.

1.1 Chicago O’Hare International Airport

Table 1.1 presents the Airport’s worldwide rankings of activity in 2004, based on statistics from Airports Council International. As shown, the Airport ranked first worldwide in total aircraft operations during this period, with 992,427 takeoffs and landings; second worldwide in total passengers, with 75.1 million enplaned and deplaned passengers; and 14th worldwide in total cargo, with 1.7 million enplaned and deplaned tons.1

The level of passengers, operations, and cargo tons reached in 2004 was the highest recorded annual level for each of these categories in the Airport’s history. The Airport has ranked first worldwide in total aircraft operations in 40 of the last 43 years and first worldwide in total passengers in 36 of the last 43 years. In 2004, the Airport served 75.1 million passengers or approximately 206,000 total passengers each day.

Table 1.2 presents a comparison of international and total enplaned passengers at top U.S. gateway airports in 1995, 2000, and 2004. As shown, the Airport ranked fourth behind John F. Kennedy International (New York), Los Angeles International, and Miami International Airports in international enplaned passengers in each of these years. As also shown, the Airport’s percentage of international enplaned passengers to total enplaned passengers increased from 10.0 percent in 1995 to 14.1 percent in 2000 and 2004.

Based on U.S. Department of Transportation (US DOT) survey data, the Airport was ranked third in domestic O&D passengers in 2004, following Los Angeles International and McCarran International (Las Vegas) Airports. As a result, passenger activity at the Airport is not as dependent upon the air service level decisions of its hub carriers as its status as a major dual hub might suggest. In 2004, origin-destination (O&D) passengers were approximately 45 percent of total enplaned passengers, or 16.8 million of 37.4 million enplaned passengers.

The Airport serves as an important O&D market for United Airlines (United), American Airlines (American), and the other passenger airlines serving the Airport. Passenger service is provided at the Airport by 13 of the nation’s 16 major passenger airlines.2 In addition to American and United, these airlines include Alaska Airlines, America West Airlines, American Eagle, ATA, Comair, Continental Airlines, Delta Air Lines, ExpressJet Airlines, Northwest Airlines, SkyWest, and US Airways.3

The Chicago Region’s location along the heavily traveled east/west air routes and its large population base make it a natural location for airline hubbing operations. United and American, the world’s two largest air carriers in terms of revenue passenger miles as of December 31, 2004, operate major connecting hub facilities at the Airport. Based on US DOT survey data, connecting passengers at the Airport represented approximately 60 percent of United’s enplanements and approximately 55 percent of American’s

1 A primary factor for the Airport being rated higher than Hartsfield-Jackson Atlanta International Airport (ATL) in

operations yet second to this airport in total passengers was that 45.6 percent of the Airport’s scheduled domesticdepartures were conducted by regional jets, compared to 26.5 percent at ATL.

2 As defined by the FAA, a major U.S. passenger airline has more than $1 billion in gross operating revenues during any calendar year (the largest group of U.S. passenger airlines in terms of their total revenues). The current group of major U.S.passenger airlines attained “major” status based on their total revenues for calendar year 2004.

3 ATA serves the Airport with nonscheduled charter service. Southwest, which provides scheduled service at Midway International Airport, AirTran, and JetBlue are the only major U.S. passenger airlines that currently do not serve the Airport.

City of Chicago



Table 1.1

Top 15 Worldwide Ranking of Activity - 2004

Total Total Total Cargo

Rank Airport Operations Airport Passengers Airport (tons)

1 Chicago (ORD) 992,427 Atlanta (ATL) 83,606,583 Memphis (MEM) 3,554,575

2 Atlanta (ATL) 964,858 Chicago (ORD) 1

75,118,671 Hong Kong (HKG) 3,119,008

3 Dallas/Fort Worth (DFW) 804,865 London (LHR) 67,344,054 Tokyo (NRT) 2,373,133

4 Los Angeles (LAX) 655,097 Tokyo (HND) 62,291,405 Anchorage (ANC) 2,252,911

5 Denver (DEN) 560,198 Los Angeles (LAX) 60,688,609 Seoul (ICN) 2,133,444

6 Phoenix (PHX) 546,763 Dallas/Fort Worth (DFW) 59,412,217 Los Angeles (LAX) 1,913,676

7 Las Vegas (LAS) 544,679 Paris (CDG) 51,260,363 Paris (CDG) 1,876,900

8 Minneapolis/St Paul (MSP) 541,093 Frankfurt (FRA) 51,098,271 Frankfurt (FRA) 1,838,894

9 Paris (CDG) 525,660 Amsterdam (AMS) 42,541,180 Singapore (SIN) 1,795,646

10 Detroit (DTW) 522,538 Denver (DEN) 42,393,766 Miami (MIA) 1,778,902

11 Cincinnati (CVG) 517,520 Las Vegas (LAS) 41,441,531 Louisville (SDF) 1,739,492

12 Houston (IAH) 517,197 Phoenix (PHX) 39,504,898 New York (JFK) 1,706,468

13 Philadelphia (PHL) 486,164 Madrid (MAD) 38,704,731 Taipei (TPE) 1,701,020

14 Frankfurt (FRA) 477,475 Bangkok (BKK) 37,960,169 Chicago (ORD) 1,689,304

15 London (LHR) 475,999 New York (JFK) 37,518,143 Shanghai (PVG) 1,642,176

1 Excludes general aviation, military, helicopter, and miscellaneous passengers included in the City of Chicago's

Department of Aviation Management Records.

Sources: Airports Council International, ACI Traffic Data 2004 , July 12, 2005.

City of Chicago, Department of Aviation Management Records

Prepared by: Ricondo & Associates, Inc.

City of Chicago


Report of the Airport Consultant December 14, 2005

E-14

Table 1.2

Airport 1995 2000 2004 1995 2000 2004 1995 2000 2004

New York - Kennedy 8,381,084 9,194,966 8,703,921 14,985,951 16,274,588 18,686,299 55.9% 56.5% 46.6%

Los Angeles 6,846,329 8,780,183 8,059,140 27,234,353 33,836,077 30,210,609 25.1% 25.9% 26.7%

Miami 7,179,328 8,096,068 6,930,140 16,594,647 16,756,422 15,078,614 43.3% 48.3% 46.0%

Chicago - O'Hare 3,301,321 5,049,197 5,272,490 32,858,551 35,700,949 37,444,548 10.0% 14.1% 14.1%

New York - Newark 1,926,350 4,199,963 4,159,930 13,320,486 16,948,663 15,922,972 14.5% 24.8% 26.1%

San Francisco 2,981,341 4,023,555 3,791,737 18,162,551 20,196,217 16,073,362 16.4% 19.9% 23.6%

Houston - George Bush 1,445,941 2,830,768 3,245,795 11,994,451 17,520,633 18,254,237 12.1% 16.2% 17.8%

Atlanta 1,436,609 2,916,309 3,116,157 28,857,835 40,154,824 41,836,667 5.0% 7.3% 7.4%

Dallas - Fort Worth 1,599,672 2,590,390 2,532,681 28,245,426 30,363,955 29,709,302 5.7% 8.5% 8.5%

Washington - Dulles 1,316,295 2,083,201 2,258,045 6,147,787 9,971,630 11,324,186 21.4% 20.9% 19.9%

Source: Airports Council International, Worldwide Airport Traffic Report , for years noted. Data for 2004 was last updated July 12, 2005

Source (Chicago - O'Hare): City of Chicago, Department of Aviation Management Records


International Enplanements Total Enplanements International Share of Total

Comparison of Top U.S. Gateway Airports

City of Chicago



E-15

enplanements in 2004.4 United, American, and their regional/commuter partners enplaned 18.2 million and 13.6 million passengers, respectively, at the Airport in 2004, which represented a combined 84.9 percent of total enplaned passengers at the Airport during this period.

Table 1.3 presents originating, connecting, and total enplaned passengers at the Airport from 1994 through 2004. As shown, total enplaned passengers at the Airport increased 4.6 percent in 2003 and 8.7 percent in 2004, resulting in the Airport reaching a record high 37.4 million total enplaned passengers in 2004. By comparison, total enplaned passengers nationwide increased 2.6 percent in 2003 and 7.2 percent in 2004. Previously, the Airport experienced 2 years of decreasing numbers of enplaned passengers in 2001 and 2002, during a period that included the terrorist attacks of September 11, 2001 (hereinafter referred to as September 11) and the nationwide economic slowdown. These results followed moderate passenger growth in the latter half of the 1990s, with the total number of enplaned passengers at the Airport increasing from 32.8 million in 1994 to 35.7 million in 2000.

Table 1.3 also presents the Airport’s percentage of connecting passengers to total enplaned passengers. As shown, this percentage ranged from a high of 57.7 percent in 1994 to a low of 51.8 percent in 2000. On a weighted average basis, this percentage was approximately 54 percent between 1994 and 2004. This percentage was approximately 55 percent in 2004.

As also shown in Table 1.3, originating enplaned passengers increased from 15.3 million passengers in 2003 to 16.8 million passengers in 2004, a 9.6 percent increase, which was similar to the 9.0 percent growth in U.S. originating passengers during this same period. This strong growth throughout the industry can be primarily attributed to a general recovery from the economic slowdown, as well as legacy airlines adopting pricing strategies comparable to those of low-cost carriers, resulting in increased travel by both leisure and business travelers on legacy carriers.5, 6 Connecting enplanements increased from 19.1 million passengers in 2003 to 20.7 million passengers in 2004, an 8.1 percent increase. This increase in connecting passengers was primarily due to increased hubbing activity at the Airport by American and American Eagle as a byproduct of downsizing its hub at Lambert-St. Louis International Airport in November 2003.

Table 1.4 presents average fares for 2004 at the top 10 U.S. large-hub airports, as ranked by total O&D passengers in 2004.7 As shown, the Airport was relatively competitive among these airports with an average domestic one-way fare of approximately $138 in 2004, placing it as the fifth-lowest among the top 10 O&D airports behind Las Vegas ($109), Phoenix ($112), Atlanta ($131), and New York (JFK-$135). One measure of the relative profitability of O&D markets served is the revenue yield per coupon mile (passenger flight stage). As shown in Table 1.5, the average revenue yield per coupon mile for all of the Airport’s O&D markets was $0.1362 in 2004, compared to $0.1146 nationwide.8 Similar to average fares, the Airport was relatively competitive among the airports depicted, as its average yield per coupon mile was the fifth-highest among the top 10 O&D airports, as ranked by total O&D passengers in 2004, behind Dallas (DFW-$0.1531), Minneapolis ($0.1522), Houston (IAH-$0.1504), and Atlanta ($0.1472).

The Airport’s other key statistics, which are discussed in detail in Chapter 3 of this report, are presented below:

As of October 2005, 57 passenger airlines and 23 all-cargo carriers served the Airport.

4 Percentages refer to mainline activity only. 5 Legacy carriers refer to major U.S. airlines in operation today that were in business before airline deregulation in 1978.

These carriers include American, Continental, Delta, Northwest, United, and US Airways. 6 The average domestic one-way fare at the Airport has steadily decreased from approximately $187 in 2000 to

approximately $138 in 2004. 7 Calculations of average fares include frequent flyer passengers. 8 Calculations of average revenue yield per coupon mile include frequent flyer passengers.

City of Chicago



Table 1.3

Historical Originating and Connecting Enplanements

Originating EP Connecting EP Total Total EP Connecting

Originating Annual Connecting Annual Enplaned Annual Enplanement

Year Enplanements1

Growth Enplanements Growth Passengers 2

Growth Percentage

1994 13,867,903 - 18,891,080 - 32,758,983 - 57.7%

1995 14,770,445 6.5% 18,085,015 (4.3%) 32,855,460 0.3% 55.0%

1996 15,757,488 6.7% 18,310,397 1.2% 34,067,885 3.7% 53.7%

1997 16,356,145 3.8% 18,422,593 0.6% 34,778,738 2.1% 53.0%

1998 16,764,341 2.5% 19,025,620 3.3% 35,789,961 2.9% 53.2%

1999 16,849,260 0.5% 19,098,456 0.4% 35,947,716 0.4% 53.1%

2000 17,215,087 2.2% 18,485,862 (3.2%) 35,700,949 (0.7%) 51.8%

2001 15,731,018 (8.6%) 17,579,211 (4.9%) 33,310,229 (6.7%) 52.8%

2002 15,260,093 (3.0%) 17,658,843 0.5% 32,918,936 (1.2%) 53.6%

2003 15,310,104 0.3% 19,123,428 8.3% 34,433,532 4.6% 55.5%

2004 16,778,179 9.6% 20,666,369 8.1% 37,444,548 8.7% 55.2%

Compounded

Annual Growth Rate

1994 - 2004 1.9% 0.9% 1.3%

1 Calculation of originating enplanements for each year reflects 2004 methodology.

Chicago's Department of Aviation Management Records.

Sources: US DOT Origin & Destination Survey of Airline Passenger Traffic

U.S. Department of Justice Immigration and Naturalization Service

City of Chicago, Department of Aviation Management Records


2 Excludes general aviation, military, helicopter, and miscellaneous passengers included in the City of

0

10,000,000

20,000,000

30,000,000

40,000,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Enplaned Passengers

Originating Connecting

City of Chicago


Report of the Airport Consultant December 14, 2005E-17

Table 1.4

Average Domestic One-Way Fares at Top 10 O&D U.S. Large-Hub Airports - 2004

Average One-Way Average

Fare Ranking Airport One-Way Fare 1

1 Las Vegas (LAS) $109

2 Phoenix (PHX) $112

3 Atlanta (ATL) $131

4 New York (JFK) $135

5 Chicago (ORD) $138

6 Denver (DEN) $139

7 Los Angeles (LAX) $139

8 Dallas/Fort Worth (DFW) $162

9 Houston (IAH) $165

10 Minneapolis (MSP) $166

1 Calculation includes frequent flyer passengers.

Source: US DOT O&D Survey of Airline Passenger Traffic


City of Chicago



Table 1.5

Average Domestic One-Way Yields at Top 10 O&D U.S. Large-Hub Airports - 2004

Average One-Way Yield Per Average One-Way Yield

Coupon Mile Ranking Airport Per Coupon Mile 1

1 Dallas/Fort Worth (DFW) $0.1531

2 Minneapolis (MSP) $0.1522

3 Houston (IAH) $0.1504

4 Atlanta (ATL) $0.1472

5 Chicago (ORD) $0.1362

6 Denver (DEN) $0.1255

7 Phoenix (PHX) $0.0965

8 Los Angeles (LAX) $0.0878

9 Las Vegas (LAS) $0.0866

10 New York (JFK) $0.0811

1 Calculation includes frequent flyer passengers.

Source: US DOT O&D Survey of Airline Passenger Traffic


City of Chicago



According to the Official Airline Guide, during a typical week in October 2005 (October 10, 2005 through October 16, 2005), nonstop passenger service was scheduled to 127 domestic cities with a total of 8,011 weekly flights (approximately 1,150 domestic flights per day). By comparison, and during a similar period in 2004, nonstop passenger service was scheduled to 124 domestic cities from the Airport with a total of 8,429 weekly flights (approximately 1,200 domestic flights per day). Each of the Airport’s top 50 domestic O&D markets was scheduled for nonstop service. New York, the largest domestic O&D market for the Airport, was scheduled for 399 weekly nonstop flights from the Airport during this period. Exhibit 1.1 graphically illustrates the domestic markets served nonstop from the Airport in October 2005.

According to the Official Airline Guide and Department of Aviation records, during the same period in October 2005, nonstop passenger service was scheduled to 48 international cities with a total of 800 weekly flights (approximately 115 international flights per day). By comparison, and also during a similar period in 2004, nonstop passenger service was scheduled to 46 international cities from the Airport with a total of 753 weekly flights (approximately 110 international flights per day). Six additional international destinations were provided nonstop passenger service from the Airport in October 2005 compared to October 2004, including among others Geneva, Switzerland; Nagoya, Japan; and Shanghai, China. Four international destinations were no longer provided nonstop passenger service in October 2005 compared to October 2004. Twenty-two of the Airport’s top 25 international O&D markets were scheduled for nonstop service, as well as 33 of the Airport’s top 50 international O&D markets. London, the largest international O&D market for the Airport, was scheduled for 80 weekly nonstop flights during this period. Exhibit 1.2 graphically illustrates the international markets served nonstop from the Airport in October 2005.

The Airport experienced 2 years of strong growth with a 16.4 percent increase in total enplaned and deplaned cargo in 2003 (reaching 1.6 million tons) and a 5.5 percent increase in total enplaned and deplaned cargo in 2004, reaching a record high of 1.7 million tons in 2004. Previously, the Airport experienced a decrease in total enplaned and deplaned cargo in 2001 (reaching 1.4 million tons) and minimal growth in 2002, during a period that included the terrorist attacks of September 2001 and the nationwide economic slowdown. These results followed strong growth in the latter half of the 1990s, with total enplaned and deplaned cargo at the Airport increasing from 1.4 million tons in 1994 to 1.6 million tons in 2000.

1.2 Other Area Airports

Other area airports located in the Chicago Region with scheduled commercial service include Chicago Midway International Airport (Midway) and Gary/Chicago International Airport. The nearest medium- to large-hub commercial service airport outside the Chicago Region is General Mitchell International Airport located in Milwaukee, Wisconsin.

1.2.1 Chicago Midway International Airport

Midway is located 15 miles south of the Airport. The City owns both O’Hare and Midway; and the City’s Department of Aviation operates them as separate enterprises for financial purposes. Revenues (as defined in the Bond Ordinance) resulting from the operation of O’Hare are not available to satisfy the obligations of Midway, and vice versa. The City’s Department of Aviation, with 1,409 employees, is responsible for the management, planning, design, operation and maintenance of the two airports. The City’s O’Hare Modernization Program Office, with 18 employees, is responsible for planning, design, and construction of the O’Hare Modernization Program.

Demand for air service in the Chicago Region is predominantly served through the Airport, particularly for international air traffic and nonstop travel to the area’s top 50 O&D markets. Forty of Midway’s top 50 domestic O&D markets in 2004 were included in the Airport’s top 50 domestic O&D markets in 2004. On a weighted average basis, the Airport served nearly two-thirds of the demand to these 50 O&D markets in 2004. Midway has approximately 290 daily nonstop flights to 58 markets (2 of which are international destinations),

City of Chicago



Source: Official Airline Guide, Inc., (October 10, 2005 - October 16, 2005)Prepared by: Ricondo & Associates, Inc. Exhibit 1.1

Nonstop Domestic Markets

AllentownCedar Rapids

Saginaw

Fort Myers

Palm Beach

Fort Wayne

Manchester

Sioux Falls Newburgh

Spartanburg

Tulsa

SyracuseWausau

Albuquerque

Charleston

Colorado Springs

El Paso

Fargo

Fayetteville

Green Bay

Huntsville

Knoxville

Las Vegas

Lexington

Traverse City

Westchester

Portland

Roanoke

Rochester

Savannah

Moline

Wichita

Akron

Chattanooga

San Jose

RenoToledo

Tucson

Anchorage

Appleton

Dubuque

Grand RapidsLa Crosse

South Bend

Wilkes-Barre

Greensboro

Baltimore

Chicago

Houston

Los Angeles

Louisville

Memphis

Milwaukee

Minneapolis

Philadelphia

Portland

San Antonio

San Diego

San Francisco

St. Louis

Tampa

Buffalo

Charlotte

Cincinnati

Cleveland

Dallas

Dayton

Detroit

Jacksonville

Kansas City

Miami

New Orleans

New York

Norfolk

Oakland Omaha

Orlando

Pittsburgh

Rochester

Seattle/Tacoma

Spokane

Fort Lauderdale

Champaign

Evansville

Kalamazoo

Peoria

Albany

Atlanta

Austin

Boise

Boston

Charleston

Columbia

Columbus

Denver

Des MoinesHarrisburg

Hartford

Indianapolis

Lansing

Lincoln

Nashville

Oklahoma City

Phoenix

Raleigh

Richmond

SacramentoSalt Lake City

Springfield

Madison

Providence

Bloomington

Burlington

Honolulu

Kahului

Washington D.C.

Springfield

Palm Springs

Rapid City

Baton Rouge

Birmingham

Pensacola

St. Petersburg

127 Domestic Markets Served With 8,011 Weekly Flights

Myrtle Beach

San Juan

St. Thomas

Little Rock

Santa Ana

City of Chicago



E-21

48 International Markets Served With 800 Weekly Flights

Zacatecas

Cancun

Calgary

Istanbul

Krakow

Manchester

Morelia

Munich

Edmonton

Copenhagen

Paris

Madrid

Hong KongLos Cabos

Mexico City

Warsaw

Seoul

Stockholm

Ottawa

Beijing

Dublin

Tokyo

London

Dusseldorf

Frankfurt

Guatemala City

Guadalajara

Sao Paulo

Toronto

Vancouver

ShanghaiOsaka

Aruba

AmsterdamBrussels

Puerto Vallarta

Milan

Montego Bay

Monterrey

MontrealZurich

Winnipeg

Amman

Punta Cana

RomeChicago

Nagoya

Geneva

Nassau

Source: Official Airline Guide, Inc., (October 10, 2005 - October 16, 2005); City of Chicago Department of Aviation Management Records (Madrid).Prepared by: Ricondo & Associates, Inc. Exhibit 1.2

Nonstop International Markets

City of Chicago



E-22

whereas the Airport has approximately 1,265 daily nonstop flights to 175 markets (48 of which are international destinations). Midway’s connecting percentage of passenger traffic was approximately 32 percent in 2004 (a weighted average of approximately 29 percent between 2000 and 2004), whereas the Airport’s connecting percentage of passenger traffic was approximately 55 percent in 2004 (a weighted average of approximately 54 percent between 2000 and 2004).

To assess the relationship between the two Chicago airports, air service characteristics associated with the Airport’s top 50 domestic O&D markets in 2004 were compared. Based on these analyses, these comparisons include the following; and demonstrate that each of the major Chicago airports has an identifiable service base, and each airport’s activity is expected to grow on the basis of their respective service base:

For the 38 predominantly business markets included in the Airport’s top 50 domestic O&D markets, the average one-way fares at the Airport averaged $40 higher than the fares at Midway.9 The Airport averaged 12 more daily nonstop flights to each of these markets. In addition, the Airport had 44 more daily nonstop flights to New York, Midway’s top-ranked business O&D market in 2004; and averaged 15 more daily nonstop flights to the remaining top five business O&D markets in 2004, which included in descending order of passengers: Los Angeles, Minneapolis, Kansas City, and Atlanta. Given that business travelers are generally not as price sensitive as leisure travelers, but desire greater frequency of service, the Airport is an alternative to Midway in these O&D markets.

For the 12 predominantly leisure markets included in the Airport’s top 50 domestic O&D markets, the average one-way fares at the Airport averaged only $12 higher than the fares at Midway. This difference in average one-way fares positions the Airport to compete with Midway for leisure travelers from the Chicago Region. In addition, the Airport had competitive fares to Midway’s top five leisure O&D markets in 2004, which included in descending order of passengers: Las Vegas, Orlando, Phoenix, Tampa, and Fort Lauderdale. Daily nonstop service is provided to each of these top five leisure O&D markets by American (mainline service) and United’s lower-fare service provider Ted. America West provides additional daily nonstop service to Las Vegas and Phoenix, while Spirit and USA 3000 provide additional daily nonstop service to Orlando.

The use of an airport for business travel in the Chicago Region is generally dictated by frequency and convenience of schedule, as well as type of service (O’Hare averaged 12 more daily nonstop flights to each of the Chicago Region’s top business O&D markets in 2004); whereas leisure travel with minimal fare differentials between these two airports is dictated more by geographical proximity to the air traveler (O’Hare had competitive fares to Midway’s top five leisure O&D markets in 2004). Based on these analyses, the Airport’s scheduling frequency to the Chicago Region’s top business O&D markets serves the local business traveler’s needs; and the Airport’s fares to the Chicago Region’s top leisure O&D markets are competitive with those offered at Midway.

1.2.2 Gary/Chicago International Airport

Gary/Chicago International Airport, which is owned by the City of Gary, Indiana and operated by the Gary/Chicago International Airport Authority, is also located in the Chicago Region (see Exhibit 2.1 in the next section); however, this airport provides limited scheduled commercial passenger service.10

1.2.3 General Mitchell International Airport

General Mitchell International Airport is located approximately 70 miles north of the Airport. This airport serves the commercial air service needs of Milwaukee, southeast Wisconsin, and portions of northern Illinois. Although General Mitchell International Airport is in close proximity to the Airport (their overlapping service areas include three counties in the northern Chicago Region area, which represent approximately 12 percent of 9 Calculations of average fares include frequent flyer passengers.10 In 1995, the City and the City of Gary, Indiana executed an agreement establishing the (then) Chicago-Gary Regional

Airport Authority. This agreement provides for coordination in development and operation between the City’s airports and the Gary/Chicago International Airport.

City of Chicago



the population in the Chicago Region), the higher frequencies of nonstop service to top O&D markets from the Airport attracts a portion of traffic in northern Illinois and southern Wisconsin to the Airport. Whereas General Mitchell International Airport has approximately 250 daily nonstop flights to 50 markets (including 6 daily nonstop flights to Toronto, Canada), the Airport has approximately 1,265 daily nonstop flights to 175 domestic and international markets. In addition, fare differentials are not significant enough to divert traffic from these overlapping service areas to General Mitchell International Airport, as the average one-way fare for domestic travel in 2004 was approximately $138 for the Airport and approximately $132 for General Mitchell International Airport.

City of Chicago



Economic Base for Air Transportation

Air transportation demand is strongly influenced by the demographic and economic characteristics of an airport’s air trade area - the geographical area served by the airport - particularly for the airport’s O&D passenger traffic, which represents passengers that either begin or end their trip at the airport. As a result, the strength of the Airport’s underlying economic base is an important element of passenger demand and provides a strong base in generating its dual hubbing activity.

2.1 Summary

The economic base of the Chicago Region is stable and diversified, and is capable of generating increased demand for air transportation at the Airport during the projection period. In addition, the geographic location of the Airport, as well as the Chicago Region’s O&D passenger base, should continue to make the Airport an ideal and natural location for airline hub operations and generate continued growth in passengers.

The strong economic base that serves the Airport has contributed to the Airport being one of the busiest airports worldwide in terms of operations and passengers. Based on statistics from Airports Council International, the Airport ranked first worldwide in total aircraft operations in 2004 and second worldwide in total passengers. The level of operations and passengers reached in 2004 was the highest recorded annual level for both of these categories in the Airport’s history. The Airport has ranked first worldwide in total aircraft operations in 40 of the last 43 years and first worldwide in total passengers in 36 of the last 43 years.

The factors analyzed in this chapter for the Airport’s air trade area, and then compared to regional and nationwide trends, are critical in determining the ability of the Chicago Region to generate demand for the Airport. The analysis of socioeconomic trends in the Chicago Region, as defined in Section 2.3 below, can be summarized as follows:

Third Largest Population Base in the Nation. The Chicago Region has a substantial population base with approximately 9.5 million residents in 2004. It is the third largest region in terms of population in the United States.

Population Growth Projections Comparable to Midwest but Less than Nation. Population in the Chicago Region increased at a compounded annual growth rate of 1.0 percent between 1990 and 2004, compared with 0.7 percent for the Midwest and 1.2 percent nationwide. Between 2004 and 2015, population in the Chicago Region is conservatively projected to increase at a rate comparable to that for the Midwest, but less than that for the nation.

Third Wealthiest Metropolitan Statistical Area in the Nation. The Chicago Region includes the nation’s third wealthiest metropolitan statistical area (MSA) in terms of total effective buying income (EBI). Per capita EBI for the Chicago Region was consistently higher than that for the Midwest and for the nation between 1999 and 2004. In 2004, the Chicago Region had a significantly larger percentage of households with an EBI of $50,000 or more (45.4 percent), compared to the Midwest (36.8 percent) and the nation (36.7 percent). According to Sales and Marketing Management,continued strong growth in per capita EBI in the Chicago Region is expected between 2004 and 2009, the latest year for which such projections are currently available.

Unemployment Rates Comparable to the Midwest and the Nation. Average annual unemployment rates for the Chicago Region generally ranged near the unemployment rates for the Midwest and the nation each year between 1994 and 2004. The Chicago Region experienced a larger decrease in unemployment rates than the Midwest or the nation between 2003 and 2004.

Diversified Economy. On a percentage basis, the sectors of nonagricultural employment in the Chicago Region were generally consistent with those of the nation in 2004, providing the area with an economic base as diversified as the national economy.

City of Chicago



Large Number of Fortune 500 Companies Stimulates Demand for Business Travel. Twenty-eight companies in the Chicago Region were listed in top 500 by Fortune as companies with the highest annual revenues in the United States in 2004, the second highest number of companies for any region in the United States. Companies included Boeing, Walgreen Co., Sears Roebuck and Co., and Motorola, Inc.

Significant Tourism Stimulates Demand for Leisure Travel. The travel and tourism industry is one of the largest services industry employers in the Chicago Region. The Chicago Region offers a variety of cultural, recreational, and educational resources and activities. Approximately 32 million people traveled to Chicago in 2004. McCormick Place is the nation’s largest exhibition hall with 2.2 million square feet of available and will be further expanded by 2008. In 2003, The Chicago Region hosted an estimated 6.9 million people for conventions, trade shows, and exhibitions.

2.2 Air Trade Area

The Airport’s air trade area consists of 15 counties in the Chicago area. Based on recent statistical changes, the O’Hare air trade area consists of two MSAs that contain four adjoining major metropolitan areas.1

According to the federal government’s Office of Management and Budget (OMB), an MSA is a geographical area with a large population nucleus, along with any adjacent communities that have a high degree of economic and social interaction with that nucleus.

The Chicago-Naperville-Joliet MSA contains 14 counties located in Illinois, Indiana, and Wisconsin. Counties in the Chicago-Naperville-Joliet MSA include the Illinois counties of Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry, and Will; the Indiana counties of Jasper, Lake, Newton, and Porter; and the Wisconsin county of Kenosha. Additionally, the Kankakee-Bradley MSA in Illinois is within the Airport’s air trade area and includes Kankakee County.

This two-MSA, 15-county air trade area, presented in Exhibit 2.1, is hereinafter referred to as the Chicago Region.

2.3 Population

The Chicago Region has the third largest population in the United States behind the New York, New York and Los Angeles, California Regions. An analysis of population growth in the Chicago Region is important in that it strongly affects labor force growth, which ultimately translates into economic growth. Historical population data for the Chicago Region, the Midwest (which includes Illinois, Indiana, Michigan, Ohio, and Wisconsin), and the United States is presented in Table 2.1. Population in the Chicago Region increased from 8,278,300 in 1990 to 9,202,280 in 2000, and then to 9,439,136 in 2003. While 11 of the 15 counties in the Chicago Region experienced higher population growth than the nation between 1990 and 2003, the overall Chicago Region growth was weighted by Cook County, which represented 54 percent of total population in the Chicago Region in 2003. As evident by the counties with 2 percent or greater growth from 1990-2003 - Kane, Kendall, Lake (IL), McHenry, and Will - historical population trends for the Air Trade Area reflect a nationwide shift from urbanized metropolitan areas to less populated adjacent areas.

Table 2.1 also presents population projections for the Chicago Region, the Midwest, and the nation for 2015. Population in the Chicago Region is projected to increase at a compounded annual growth rate of 0.4 percent between 2003 and 2015 (from 9,439,136 in 2003 to 9,900,126 in 2015). This relatively lower growth rate is consistent with national demographic trends, wherein states in the Midwest and the Northeast portions of the United States experienced rates of population growth lower than comparable rates for states in the Southeast

1 The OMB revised its geographic Census definitions to include Metropolitan and Micropolitan Statistical Areas, collectively

called Core Based Statistical Areas (CBSAs). The Metropolitan Areas have at least one central urbanized core area of 50,000 people and the Micropolitan Areas have at least one urbanized core area of at least 10,000 people, but fewer than 50,000 people.

City of Chicago



Exhibit 2.1

Source: Map: Cartesia Software, Map Art, 1998;Population Data: Environmental Systems Research Institute, 2000 Census Tract Data


Chicago Region

Chicago O‘HareInternational Airport

Chicago MidwayInternational Airport

Gary/ChicagoInternational Airport

Chicago-Naperville-Joliet MSA

Kankakee-Bradley MSA

1 Dot = Population of 500

Legend

J A S P E R

L A K E

N E W T O N

P O R T E R

C O O K

D E K A L BD U P A G E

G R U N D Y

L A K E

K A N E

K A N K A K E E

K E N D A L L

M C H E N R Y

W I L L

K E N O S H AW IW I S C O N S I N

I L

I L L I N O I S

ILL

INO

IS

I N

IND

IAN

A

O H

M I

City of Chicago



Table 2.1

Historical and Projected Population

Historical Projected Compunded Annual Growth Rate

Area 1990 2000 2004 2015 1990-2000 1990-2004 2000-2004 2004-2015

Cook County, IL 5,105,044 5,376,741 5,327,780 5,182,190 0.5% 0.3% (0.2%) (0.3%)

DeKalb County, IL 77,932 88,969 95,500 100,300 1.3% 1.5% 1.8% 0.4%

DuPage County, IL 781,689 904,161 928,720 1,057,570 1.5% 1.2% 0.7% 1.2%

Grundy County, IL 32,337 37,535 41,060 44,220 1.5% 1.7% 2.3% 0.7%

Jasper, IN 24,910 30,043 31,630 34,100 1.9% 1.7% 1.3% 0.7%

Kane County, IL 317,471 404,119 472,480 535,810 2.4% 2.9% 4.0% 1.2%

Kankakee County, IL 96,255 103,833 107,190 106,970 0.8% 0.8% 0.8% 0.0%

Kendall County, IL 39,413 54,544 72,550 88,950 3.3% 4.5% 7.4% 1.9%

Kenosha County, WI 128,181 149,577 158,430 165,970 1.6% 1.5% 1.4% 0.4%

Lake County, IL 516,418 644,356 692,900 783,950 2.2% 2.1% 1.8% 1.1%

Lake County, IN 475,594 484,564 490,850 466,890 0.2% 0.2% 0.3% (0.5%)

McHenry County, IL 183,241 260,077 296,390 366,500 3.6% 3.5% 3.3% 1.9%

Newton, IN 13,570 14,566 14,420 14,750 0.7% 0.4% (0.3%) 0.2%

Porter County, IN 128,932 146,798 154,960 173,570 1.3% 1.3% 1.4% 1.0%

Will County, IL 357,313 502,266 613,850 738,560 3.5% 3.9% 5.1% 1.7%

Chicago Region 8,278,300 9,202,149 9,498,710 9,860,300 1.1% 1.0% 0.8% 0.3%

Midwest 42,009,104 45,155,037 46,031,880 47,945,370 0.7% 0.7% 0.5% 0.4%

United States 248,710,000 281,421,906 293,655,500 327,505,820 1.2% 1.2% 1.1% 1.0%

Sources: U.S. Department of Commerce, Bureau of the Census (1990 & 2000)

National Planning Association, Data Services, Inc. (2004 and 2015)


City of Chicago



E-28

and Western regions of the country. However, the population growth rates for DuPage, Lake (IL), McHenry, and Porter counties are expected to exceed the national rate between 2003 and 2015. Future steady growth in population expected in the Chicago Region will support projected increases in activity at the Airport during the projection period.

Two important economic growth indicators are population age distribution and educational achievement levels. A younger and better-educated population will generally earn greater disposable income that increases over time. Furthermore, younger populations contain a higher proportion of employed workers, supporting higher production. Higher disposable income and higher production provide increased demand for air travel. Table 2.2 presents the Chicago Region’s age distribution. As shown, based on the 2000 U.S. Census, the Chicago Region’s population is generally younger than the populations of the Midwest and the United States – 68.0 percent of the population in the Chicago Region is 44 years of age or younger, compared to 65.3 percent for the Midwest and 65.5 percent for the nation. Also based on the 2000 U.S. Census, the Chicago Region’s population is generally more highly educated than that of the Midwest and the nation. Table 2.3 compares education levels in the Chicago Region to those in the Midwest and the United States. As shown, 28.9 percent of the population in the Chicago Region hold a Bachelor’s degree or higher, compared to 22.6 percent in the Midwest and 24.4 percent nationwide. These two factors, higher disposable income and higher production, will contribute to increased demand for air travel at the Airport during the projection period.

2.4 Income

One measure of an area’s relative income is its EBI. EBI is a measurement that indicates the general ability to purchase available products or services, including air travel demand. EBI is essentially disposable income and is calculated as personal income less personal taxes (federal, state, and local); non-tax payments, including fines and penalties; and personal contributions for social insurance. According to Sales and Marketing Management, the Chicago MSA ranked third in total EBI among the top 300 Metropolitan and Micropolitan Statistical Areas in the nation in 2004.

Table 2.4 presents per capita EBI for the Chicago Region, the Midwest, and the nation between 1999 and 2004. Per capita EBI for the Chicago Region was consistently higher than that for the Midwest and the nation between 1999 and 2004. Per capita EBI for the Chicago Region increased at a compounded annual growth rate of 0.8 percent between 1999 and 2004, compared to 1.5 percent for the Midwest and 1.7 percent for the nation.

Table 2.4 also presents projections of per capita EBI for 2009. According to Sales and Marketing Management, per capita EBI for the Chicago Region is projected to increase from $21,824 in 2004 to $24,032 in 2009. This increase represents a compounded annual growth rate of 2.4 percent during this period, which is comparable to growth projected for the Midwest and the nation.

The percentage of higher income households (defined herein as those earning $50,000 or more annually) within the Chicago Region is another key indicator of demand for air transportation services. An examination of this indicator is important in that, as personal income increases, air transportation become more affordable and, therefore, is used more frequently. Table 2.4 presents percentages of households in selected EBI categories for 2004. As shown, 45.4 percent of households in the Chicago Region had an EBI of $50,000 or more in 2003, compared to 36.8 and 36.7 percent in the Midwest and the nation, respectively, during this same period. This significantly higher percentage of higher income households within the Chicago Region provides the Airport with a strong supply of local demand for air travel.

2.5 Employment

Employment trends for the Chicago Region, the Midwest, and the United States are presented in Table 2.5.The Chicago Region’s civilian labor force increased slightly in 2004 after decreasing slightly in 2002 and 2003. The decrease in 2002 and 2003 followed increases each year between 1994 and 2001. The decrease in 2002 and 2003 was due to the Midwest economic slowdown beginning in March 2001. The civilian labor force for the Chicago Region and the Midwest experienced similar growth between 1994 and 2004, with

City of Chicago



Table 2.2

Age Distribution - U.S. Census 2000

Chicago Region Midwest United States

Total Population 9,202,149 45,155,037 281,421,906

By Age Group:

19 and Under 29.7% 28.8% 28.6%

20 to 24 years 6.7% 6.7% 6.7%

25 to 34 years 15.3% 13.8% 14.2%

35 to 44 years 16.3% 16.0% 16.0%

45 to 54 years 13.0% 13.5% 13.4%

55 to 64 8.1% 8.6% 8.6%

65 and Above 10.9% 12.6% 12.4%

TOTAL 1100.0% 100.0% 100.0%

Median Age 33.9 35.5 35.3

1 Columns may not add to totals shown because of rounding.

Source: Census 2000, U.S. Department of Commerce, Bureau of the Census


City of Chicago



Table 2.3

Educational Attainment - U.S. Census 2000


Population 25 years and over 5,853,719 29,170,508 182,211,639

No High School Diploma 18.9% 17.2% 19.6%

High School Graduate (includes equivalency) 25.4% 32.7% 28.6%

Some College, No Degree 21.2% 21.2% 21.0%

Post-Secondary Degree

Associate Degree 5.7% 6.4% 6.3%

Bachelor's Degree 18.2% 14.5% 15.5%

Master's Degree or Doctorate 10.7% 8.1% 8.9%

TOTAL 1100.0% 100.0% 100.0%


Source: Census 2000, U.S. Department of Commerce, Bureau of the Census


City of Chicago



Table 2.4

Effective Buying Income

Per Capita EBI

Year Chicago Region Midwest United States

Historical

1999 $20,972 $17,922 $17,691

2000 $21,623 $18,629 $18,426

2001 $22,089 $18,539 $18,491

2002 $21,037 $18,728 $18,375

2003 $21,248 $18,722 $18,662

2004 $21,824 $19,319 $19,289

Projected

2009 $24,032 $21,460 $21,506

Compounded

Annual Growth Rate

1999 - 2004 0.8% 1.5% 1.7%

2004 - 2009 2.4% 2.7% 2.8%

Percentage of Households in Income Categories (2004 EBI)

Area

Chicago Region 17.2% 19.0% 18.5% 45.4%

Midwest 20.5% 22.7% 20.0% 36.8%

United States 21.5% 22.5% 19.3% 36.7%

Source: Sales & Marketing Management , "Survey of Buying Power", 2000-2005


$50,000 or More

Less Than $20,000

$20,000 to $34,999

$35,000 to $49,999

City of Chicago



Table 2.5

Civilian Labor Force and Unemployment Rates

Civilian Labor Force (Thousands)


1994 4,474 22,248 131,056

1995 4,564 22,480 132,304

1996 4,616 22,698 133,943

1997 4,650 22,916 136,297

1998 4,678 23,001 137,673

1999 4,765 23,242 139,368

2000 4,820 23,548 142,583

2001 4,833 23,637 143,734

2002 4,763 23,410 144,863

2003 4,761 23,522 146,509

2004 4,785 23,601 147,390

1994 - 2004 0.7% 0.6% 1.2%

Unemployment Rates


1994 5.9% 5.5% 6.1%

1995 5.2% 4.8% 5.6%

1996 5.2% 4.7% 5.4%

1997 4.7% 4.3% 4.9%

1998 4.4% 4.0% 4.5%

1999 4.4% 3.8% 4.2%

2000 4.4% 3.8% 4.0%

2001 5.5% 4.8% 4.7%

2002 6.7% 5.9% 5.8%

2003 6.7% 6.3% 6.0%

2004 6.1% 6.1% 5.5%

Source: U.S. Department of Labor, Bureau of Labor Statistics


Compounded Annual Growth Rate

City of Chicago



compounded annual growth rates of 0.7 percent and 0.6 percent, respectively, while the nation experienced compounded annual growth of 1.2 percent during this period. Trends in unemployment rates for the Chicago Region between 1994 and 2004 were similar to those for the Midwest and the nation; however, the unemployment rate in the Chicago Region decreased at a greater rate than in the nation or the Midwest from 2003 to 2004 (decreasing from 6.7 percent to 6.1 percent).

An analysis of nonagricultural employment trends by major industry divisions, presented in Table 2.6,indicates the sources of jobs in the local economy. In this table, employment trends in the Chicago Region are compared to data for the nation in 1994 and 2004. Nonagricultural employment in the Chicago Region increased from approximately 4.2 million workers in 1994 to approximately 4.5 million workers in 2004. This increase represents a 0.7 percent compounded annual growth rate during this period. On a percentage basis, the sectors of nonagricultural employment in the Chicago Region were generally consistent with those of the nation in 2004, providing the area with an economic base as diversified as the national economy. The broad base of employment within major industry divisions provides the Chicago Region with a buffer against the inevitable periodic downturns in the economy.

Employment in the Chicago Region’s major industry groups, except manufacturing and information, increased between 1994 and 2004, with the highest growth occurring in the services and construction sectors. The Chicago Region’s industrial mix shifted between 1994 and 2004, as manufacturing employment decreased from 15.9 percent of total nonagricultural employment in 1994 to 11.4 percent in 2004; and services employment increased from 35.9 percent of total nonagricultural employment in 1994 to 40.9 percent in 2004. These trends are consistent with nationwide changes in the industrial mix, as manufacturing decreased from 14.9 percent to 10.9 percent of total nonagricultural employment in the nation, while services employment increased from 34.6 percent to 39.0 percent of total nonagricultural employment during this period.

Major employers in the Chicago Region, as measured by the number of employees, are presented in Table 2.7.According to Crain’s Chicago Business, 24 employers in the Chicago Region have 10,000 or more employees. The largest private-sector employers in the Chicago Region in August 2005 included grocery retailer Jewel-Osco (34,037 employees), health care company Advocate Health Care (25,279 employees), and package delivery service United Parcel Service (19,346 employees). The largest public-sector employers in August 2005 included the United States Government (78,000 employees), Chicago Public Schools (43,783 employees), City of Chicago (39,675 employees), and Cook County (25,482 employees).

Each year, Fortune ranks the largest 500 U.S. firms across all industrial categories in terms of annual revenues. In 2004, the Chicago Region had the 2nd highest number of Fortune 500 company headquarters in the nation with 28 (behind the New York City Region) including: Boeing (ranked 25th overall and the highest ranked aerospace manufacturer); Walgreen Co. (ranked 38th overall and a leading drugstore operator); Sears Roebuck and Co. (ranked 45th overall and a leading retailer); and Motorola Inc. (ranked 49th overall and a leading electronic component manufacturer). Other Fortune 500 companies headquartered in the Chicago Region include: Allstate Insurance Company, Abbott Laboratories, Sara Lee Corporation, McDonald’s Corporation, United Airlines, Exelon Corporation, Office Max, Illinois Tool Works, Aon Corporation, Navistar International Corp., Baxter, and Smurfit-Stone Container Corporation.

2.6 Economic Base

Table 2.8 lists the fastest-growing public firms in the Chicago Region in 2004, according to Crain’s Chicago Business. These firms offer a diverse range of goods and services, including financial services, education, and manufacturing. This diversity reflects the Chicago Region’s underlying industrial variety and breadth, making the Chicago Region more balanced during economic cycles.

The Chicago Region’s local economy is reviewed in greater detail in the remainder of this section, to illustrate the basis for the Region’s economic strength. As discussed earlier, the broad base of employment within

City of Chicago



Table 2.6

Employment Trends by Major Industry Division

(Trends in Thousands)

Chicago Region Nonagricultural Employment United States Nonagricultural Employment

Industry 1994 2004 1994 2004

Construction 1

173 4.2% 216 4.9% 2.3% 5,754 5.0% 7,555 5.7% 2.8%

Manufacturing 663 15.9% 508 11.4% (2.6%) 17,021 14.9% 14,329 10.9% (1.7%)

Transportation/Utilities 202 4.8% 202 4.5% 0.0% 4,390 3.8% 4,820 3.7% 0.9%

Trade 699 16.8% 715 16.1% 0.2% 18,738 16.4% 20,690 15.7% 1.0%

Finance/Insurance/Real Estate 298 7.2% 326 7.3% 0.9% 6,867 6.0% 8,052 6.1% 1.6%

Information 109 2.6% 96 2.1% (1.3%) 2,738 2.4% 3,138 2.4% 1.4%

Services 1,495 35.9% 1,821 40.9% 2.0% 39,509 34.6% 51,278 39.0% 2.6%

Government 525 12.6% 567 12.7% 0.8% 19,275 16.9% 21,618 16.4% 1.2%

TOTAL2

4,165 100.0% 4,450 100.0% 0.7% 114,291 100.0% 131,480 100.0% 1.4%

Percent of 2004 Nonagricultural Employment

1 Includes mining employment.


Source: U.S. Department of Labor, Bureau of Labor Statistics


Percent of Total

Employment

Compounded

Annual Growth

Rate

Percent of Total

Employment

Percent of Total

Employment

Compounded

Annual Growth

Rate

Percent of Total

Employment

4.9%5.7%

11.4%

4.5%

16.1%

7.3%

2.1%

40.9%

12.7%

10.9%

3.7%

15.7%

6.1%

2.4%

39.0%

16.4%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0%

Government

Services

Information

Fin/Ins/Real Estate

Trade

Transportation/Utilities

Manufacturing

Construction

Chicago Region United States

City of Chicago



E-35

Table 2.7

Chicago Region's Major Employers - August 2005

Employer Employees Product or Service

U.S. Government 78,000 Government

Chicago Public Schools 43,783 Education

City of Chicago 39,675 Government

Jewel-Osco 34,037 Retail Grocer

Cook County 25,482 Government

Advocate Health Care 25,279 Hospitals, Health Care, and Health Services

United Parcel Service 19,346 Package Delivery Service

State of Illinois 17,056 Government

SBC 16,500 Telecommunication

Wal-Mart Stores 16,530 Retail Merchandise

United Airlines 15,431 Air Transportation

Archdiocese of Chicago 15,371 Religious Organization

J.P. Morgan Chase and Co. 15,366 Financial Services

Abbott Laboratories 15,200 Health Care Products and Services

Motorola 15,000 Telecommunication

Sears Holding Corp. 14,812 Retail Services

University of Chicago 13,824 Education

Walgreen Co. 11,860 Drugstore

University of Illinois at Chicago 11,743 Education

Target Corp. 11,600 Retail Merchandise

Chicago Transit Authority 11,449 Public Transportation

American Airlines 10,482 Air Transportation

Allstate Insurance 10,349 Insurance and Financial Services

Dominick's Finer Foods 10,073 Retail Grocer

LaSalle Bank Corp. 9,038 Financial Services

Hewitt Associates 8,400 Outsourcing and Consulting Services

Rush University Medical Center 8,243 Hospital, Health Care, and Health Services

Evanston Northwestern Healthcare 7,747 Hospital, Health Care, and Health Services

Northwestern University 7,404 Education

McDonald's 6,550 Fast Food Restaurants

Exelon Corp. 6,526 Energy Services Company

HSBC North America Holdings 6,100 Financial Services

Northwestern Memorial Hospital 5,967 Hospital, Health Care, and Health Services

Alexian Brothers Health System 5,676 Hospital, Health Care, and Health Services

Loyola University Health System 5,334 Hospital, Health Care, and Health Services

Source: Crain's Chicago Business, October 3, 2005


City of Chicago



Table 2.8

Chicago Region's Fastest Growing Public Firms - 2004

Compounded 2004 1999 Product

Annual revenues revenues No. of or

Rank Firm Name Growth Rate (in millions) (in millions) employees Service

1 Ecollege.Com 80.6% 89.3$ 4.7$ 443 Education Industry Service Provider

2 Calamos Asset Management Inc. 72.4% 312.1 20.5 264 Money Management and Investment Services

3 Archipelago Holdings Inc. 68.1% 544.1 40.6 234 Securities and Commodities Brokerage

4 United Financial Mortgage Corp. 59.3% 70.2 10.9 313 Residential Mortgage Banking

5 Career Education Corp. 50.6% 1,728.5 223.5 15,500 Educational Services

6 Navteq Corp. 50.4% 392.9 51.1 1,541 Digital Map Data Provider

7 Hub International LTD. 47.2% 350.7 50.8 3,170 Insurance Brokerage

8 Nalco Holding Co. 38.2% 3,033.3 601.2 10,500 Water Treatment Services

9 Kanbay International Inc. 32.8% 182.6 44.2 3,708 Information Technology for Financial Services

10 Stericycle Inc. 31.2% 516.2 132.8 3,545 Medical Waste Disposal Services

11 Allscripts Healthcare Solutions Inc. 29.6% 100.8 27.6 348 Online Medication Services

12 Chicago Mercantile Holdings Inc. 28.4% 733.8 210.6 1,283 Commodities and Other Trading Market

13 Option Care Inc. 28.0% 414.4 120.4 1,968 Home Health Care Provider

14 Cabot Microelectronics Corp. 25.7% 309.4 98.7 585 Semiconductor Parts Supplier

15 General Growth Properties Inc. 24.8% 1,891.0 625.6 5,200 Real Estate Investment Trust

16 American Pharmaceutical Partners Inc. 24.3% 405.0 136.5 1,381 Pharmaceutical Manufacturer

17 Cosi Inc. 24.3% 110.6 37.3 2,431 Convenience Restaurants

18 Sauer-Danfoss Inc. 21.3% 1,404.2 535.4 8,275 Off-Highway Mobile Hydraulic Systems Producer

19 Andrew Corp. 21.0% 1,838.7 708.0 9,408 Communication Product Manufacturer

20 Click Commerce Inc. 20.7% 25.7 10.0 117 Business-to-Business Software Product Provider

Source: Crain's Chicago Business, July 11, 2005


City of Chicago



E-37

major industry divisions provides the Chicago Region with a buffer against the inevitable periodic downturns in the economy.

2.6.1 Construction

Construction employment in the Chicago Region increased at a 2.3 percent compounded annual growth rate between 1994 and 2004. In 2004, the construction sector accounted for approximately 216,000 employees in the Chicago Region (4.9 percent of total nonagricultural employment).

Table 2.9 presents residential building permit units and valuations for the Chicago Region, the Midwest, and the United States. As shown, compounded annual growth in residential building permit units and valuations in the Chicago Region between 1994 and 2004 exceeded growth in the Midwest, but was lower than the growth experienced nationwide.

Major development projects that have been completed and/or initiated in the Chicago Region in recent years include:

Completed

Soldier Field, home of the National Football League’s Chicago Bears, was renovated at a cost of $587.0 million and reopened in September 2003. The stadium was built in 1924. The improved Soldier Field has a seating capacity of 61,500, a 2,500-car underground parking garage, a year-round restaurant, banquet facilities, additional luxury suites and clubs, and three club-level lounges.

Hyatt Center, a 1.7-million-square-foot retail/office tower with 1.5 million square feet of office space opened in early 2005. Located in downtown Chicago, this 48-story tower opened with nearly two-thirds of its space leased. Hyatt Corporation and its affiliates are expected to occupy at least 300,000 square feet of space in the tower.

111 S. Wacker Drive was completed in early 2005. The 51-story tower located in the West Loop provides over 1 million square feet of office, retail, and conference space. Deloitte & Touche currently occupies approximately 45 percent of the building with over 3,000 employees. R.R. Donnelly & Sons Co., North America’s largest printing firm, occupies an additional 10 percent and will make the building company headquarters.

ABN AMRO Plaza, a 1.2-million-square-foot, 29-story office tower on Chicago’s Near West Side opened in 2004. The tower houses the finance firm’s U.S. headquarters. Employees previously located in several buildings in the Chicago Region’s central business district have been consolidated therein.

One South Dearborn was completed in late 2005. This 40-story office and retail tower provides over 800,000 square feet of space. The international law firm of Sidley Austin Brown & Wood is the building’s anchor tenant and occupies over 500,000 square feet.

The University of Chicago Hospitals constructed a new, 242,000 square-foot, 155-bed, seven-story children’s hospital. The new hospital cost approximately $130 million and opened in 2004.

Future

McCormick Place, the air trade area’s primary convention center, is undergoing an $850 million expansion project that will provide an additional 470,000 square feet of exhibit space and 250,000 square feet of meeting space. With the additional space, McCormick place will be able to accommodate two conventions simultaneously, and also have space for additional smaller conventions that were previously too small to meet at McCormick Place. This McCormick Place West Expansion project began construction in spring 2004 and is scheduled to be completed in 2008.

Trump Tower Chicago, a retail, hotel, office and residential development, is under construction with completion scheduled in early 2008. The building will be 92 stories high, provide 1,000 parking

City of Chicago



Table 2.9

Residential Building Permit Units and Valuations

(Valuation Dollars in Thousands)


Year 1Units Valuation Units Valuation Units Valuation

1994 38,373 $4,186,252 211,968 $20,201,655 1,371,637 123,278,316

1995 36,769 $4,018,686 207,623 $19,736,674 1,332,549 120,810,731

1996 38,928 $4,344,458 221,742 $22,145,189 1,425,616 134,175,811

1997 35,378 $4,234,139 209,213 $21,688,002 1,441,136 141,004,397

1998 38,258 $4,764,466 226,637 $24,797,313 1,612,260 165,265,706

1999 44,113 $5,634,152 241,150 $27,753,909 1,663,533 181,246,047

2000 42,511 $5,674,006 226,235 $27,268,709 1,592,267 185,743,681

2001 45,467 $6,272,015 231,799 $29,051,294 1,636,676 196,242,858

2002 46,488 $7,440,325 231,799 $29,051,294 1,728,600 215,989,236

2003 50,625 $7,893,099 249,470 $34,558,376 1,889,214 249,693,105

2004 48,192 $8,177,324 242,692 $36,181,386 2,052,060 290,119,463

Compounded

Annual Growth Rate

1994-2004 2.3% 6.9% 1.4% 6.0% 4.1% 8.9%

1 Data for 1994 through 1999 do not include Jasper and Newton Counties in Indiana.

Source: U.S. Department of Commerce, Bureau of the Census


City of Chicago



E-39

spaces, and contain 2.6 million square feet of space at an estimated cost of $750 million. The building will be constructed on the previous site of the Chicago Sun-Times building along the Chicago River, and will be the tallest building constructed in the United States since the Sears Tower opened in 1974.

Illinois Technology Innovation Campus, a 28-acre technology and research park in Skokie, Illinois, was purchased by Forest City Enterprises from Pfizer in March 2005. Forest City Enterprises is planning to redevelop the site into a high-technology research and office park. The project, which is to be developed over the next 5 to 10 years, will be geared toward attracting firms in the rapidly growing fields of nanotechnology and life sciences. The site currently includes 1 million square feet of research and office space in nine buildings. Forest City Enterprises plans to renovate or redevelop four of the existing structures, totaling 674,000 square feet of space. The remaining structures will be demolished to make way for new research and office facilities totaling 326,000 square feet of space.

Chicago Fire Stadium is scheduled to open in 2006. The Major League Soccer team Chicago Fire will play its home games at this new sports and entertainment complex located in Bridgeview, Illinois. Currently playing home games at Soldier Field in Chicago, the Chicago Fire will be the primary tenant of the new stadium, and the site will house the team's offices and official training center. Upon its completion, the venue will be only the fourth major soccer-specific stadium in the United States. Once completed, it will seat 20,000 people for soccer and 28,000 people for concerts.

2.6.2 Manufacturing

In 2004, the manufacturing sector accounted for approximately 508,000 employees in the Chicago Region (11.4 percent of total nonagricultural employment).

According to World Business Chicago, a public-private, not-for-profit economic development corporation, no other U.S. metropolitan economy matches the Chicago Region’s manufacturing base, nor has a larger gross regional product in manufacturing ($72.4 billion in 2003). Chicago Region manufacturing includes significant production across many industrial subsectors, including food processing, paper and allied products, printing and publishing, chemicals and allied products, rubber and other plastic products, fabricated metals, electronics, and instrumentation.

In August 2004, Ford Motor Company opened an automotive supplier manufacturing campus on the southeast side of the City. The 155-acre site is near Ford’s Chicago Assembly Plant and houses 12 different suppliers. Together with the City and the State of Illinois, the Ford Motor Company combines resources to attract additional manufacturing jobs to the Chicago Region. The new campus has created more than 1,000 manufacturing jobs since its opening.

2.6.3 Transportation/Utilities

Transportation/utilities employment in the Chicago Region remained stable between 1994 and 2004, accounting for approximately 202,000 employees (4.5 percent of total nonagricultural employment in 2004).

Two major international airports serve the Chicago Region: O’Hare and Midway International Airport. The two largest airlines in the nation in terms of revenues, American with $18.6 billion in 2004 and United with $16.4 billion in 2004, operate hubs at O’Hare. American employed approximately 10,800 people in the Chicago Region in 2004; and United, whose headquarters are located in Elk Grove Township, Illinois, had approximately 15,800 employees in the Chicago Region in 2004.

Other major airlines with significant operations in the Chicago Region include Southwest Airlines (with approximately 3,500 employees in the Chicago Region as of July 2005), which enplaned 3,967,447 passengers or approximately 42 percent of commercial airline passengers at Midway in 2004, and ATA (with approximately 2,400 employees in the Chicago Region as of March 2005), which enplaned 3,541,712

City of Chicago



passengers or approximately 37 percent of commercial airline passengers at Midway in 2004.2 FedEx, one of the nation’s leading package delivery companies, had the highest market share of enplaned and deplaned tons of cargo among all passenger and cargo carriers at O’Hare in 2004.

The location of Chicago in the Midwest and in the central time zone, along with unequalled non-stop passenger service, means that business travelers can fly to meet with clients or customers in nearly any U.S. city and return on the same business day. In addition, 50 percent of the North American industrial economy is within one day's truck delivery, 75 percent of North America's consumers are less than two days’ truck delivery away, and 50 percent of U.S. rail freight passes through Chicago Region rail yards every year. The Chicago Region also handles the third highest volume of containerized cargo in the world, behind Hong Kong and Singapore.

The Chicago Region is at the center of one of the world’s largest trading areas and is served by a comprehensive network of interstate highways, tollways, and state roads that make it very accessible by truck and automobile from the east (Interstate 80/90), from the south (Interstates 57, 65, and 94), and from the west (Interstates 55 and 88). More than 200 truck terminals serve the Chicago Region, allowing 417,000 truckloads of freight to be driven out of the area daily. The convergence of major highways in the Chicago Region contributes to the likelihood that the Chicago Region will continue to be a major shipping center in North America.

The Port of Chicago and the surrounding region is linked to the Atlantic Ocean via the St. Lawrence Seaway, and has access to the Gulf of Mexico via the Mississippi River. According to the Illinois International Port District, 26 million tons of natural resources and produced goods are moved throughout the Midwest and the world annually.

The Chicago Region has approximately 471.9 million square-feet of warehouse space with an additional 102 million square feet currently under construction. World Business Chicago estimates that 45 percent of available industrial real estate in the Chicago Region is devoted to the distribution of goods.

Four major passenger railways serve the Chicago Region and link it to surrounding communities and the nation: Amtrak - providing interstate passenger service; Metra and the Chicago SouthShore and South Bend Railroad - providing heavy-rail commuter services; and the Chicago Transit Authority - providing commuter services within the City (including transportation to and from O’Hare and Midway).

2.6.4 Trade

Trade employment in the Chicago Region increased at a 0.2 percent compounded annual growth rate between 1994 and 2004. The trade sector accounted for approximately 715,000 employees in the Chicago Region in 2004 (16.1 percent of total nonagricultural employment). Of that total, approximately 66 percent were engaged in retail trade.

One indicator of growth in the trade sector is retail sales, defined as all net sales (gross sales minus refunds and allowances for returns) for establishments engaged primarily in retail trade. According to Sales and Marketing Management, the Chicago MSA ranked third in total retail sales among the top 300 Metropolitan and Micropolitan Statistical Areas in the nation in 2004.

2 ATA filed for bankruptcy protection under Chapter 11 on October 26, 2004. On December 21, 2004, the U.S. Bankruptcy

Court granted approval for Southwest to acquire lease rights to six gates and a maintenance hangar at Midway for $40 million, to provide $47 million in financing, and to make an investment of $30 million in ATA once it emerges from Chapter 11. The agreement created the first significant code-share arrangement for both airlines, which became effective on February 4, 2005.

City of Chicago



Table 2.10 presents historical total retail sales for the Chicago Region, the Midwest, and the nation for 2000 through 2004.3 As shown, growth in total retail sales between 2000 and 2004 was higher in the Chicago Region than in the Midwest, but lower than retail sales nationwide.

Table 2.10 also presents projected total retail sales for the three regions in 2009. According to Sales & Marketing Management, total retail sales for the Chicago Region are projected to increase from approximately $124.1 million in 2004 to approximately $142.2 million in 2009. This increase represents a 2.8 percent compounded annual growth rate during this period. This steady growth in total retail sales, which also provides an indication of growth in disposable income, is evidence of increased demand for air travel at the Airport during the projection period.

Michigan Avenue, known as the Magnificent Mile, offers 460 retail stores over eight blocks near downtown Chicago including Water Tower Place (100 retail stores and restaurants on seven levels) and 900 North Michigan (70 retail stores). In addition, approximately 40 major shopping malls are located in the Chicago Region, including: Old Orchard (150 retail stores) in Skokie, Illinois; Hawthorn Center (150 retail stores) in Vernon Hills, Illinois; and Oakbrook Center (160 retail stores) in Oak Brook, Illinois.

2.6.5 Finance/Insurance/Real Estate

Finance/insurance/real estate employment in the Chicago Region increased at a compounded annual growth rate of 0.9 percent between 1994 and 2004. In 2004, this sector accounted for approximately 326,000 employees in the Chicago Region (7.3 percent of total nonagricultural employment).

Effective July 1, 2004, Chicago-headquartered Bank One merged with J.P. Morgan Chase to create a leading global financial service company with operations in more than 50 countries. Prior to the merger, Bank One was the nation’s sixth largest bank holding company, with assets of $320 billion. J.P. Morgan Chase had assets of $793 billion. Together, the company has $1.1 trillion in combined assets. The company is operating under the name J.P. Morgan Chase & Co. Corporate headquarters for J.P Morgan Chase & Co. is in New York, while U.S. retail financial services and commercial banking headquarters remain in Chicago. J.P. Morgan Chase retained approximately 15,400 employees in Chicago and has approximately 162,700 total employees.

According to Crain’s Chicago Business, the three largest banks headquartered in the Chicago Region in terms of assets are LaSalle Bank ($106.6 billion), Harris Trust & Savings Bank ($58.8 billion), and Northern Trust Co. ($44.0 billion). Table 2.11 presents total bank deposits for the Chicago Region, the Midwest, and the nation in 1994 through 2004. As shown, the compounded annual growth rate in bank deposits for the Chicago Region exceeded the rate for the Midwest but was lower than the growth nationwide.

The Chicago Region is home to three major global trading exchanges – the Chicago Board of Trade (CBOT), the Chicago Mercantile Exchange (CME or the Merc), and the Chicago Board Options Exchange (CBOE). CBOT is one of the world's largest futures exchanges, helping firms manage risk by securing commodity prices. The Merc has four major product areas: interest rates, stock indexes, foreign exchange, and commodities. In 2003, there were 1.38 billion derivative trades at the Merc, with an underlying value of $334 trillion, representing the largest nominal value traded on any futures exchange in the world. CBOE trades in a wide variety of derivatives, including options on about 1,200 widely traded stocks, as well as on interest rates, broad-based stock indexes (such as the Standard & Poor's 500 Index), and industry indexes (such as oil and health care).

The Chicago Region is home to many of the nation’s largest insurance firms. Allstate Corporation, the nation’s largest publicly held personal lines insurer, and 51st on the Fortune 500 list, had revenues of $33.9

3 Due to a change in reporting total retail sales in “Survey of Buying Power 2000”, total retail sales for 1999 are not available.

In addition, total retail sales beginning in 2000 are not compatible with data for earlier years due to a different benchmark and definition.

City of Chicago



Table 2.10

Total Retail Sales 1

(Dollars in Millions)


Historical

2000 $111,855 $562,109 $3,409,490

2001 $117,884 $593,350 $3,658,749

2002 $116,144 $586,070 $3,627,218

2003 $118,234 $587,095 $3,724,992

2004 $124,061 $612,120 $3,906,482

Projected

2009 $142,246 $690,952 $4,618,201

Annual Growth Rate

2000 - 2004 2.6% 2.2% 3.5%

2004 - 2009 2.8% 2.5% 3.4%

Source: Sales & Marketing Management , "Survey of Buying Power", 2000-2004


Compounded

City of Chicago



Table 2.11

Total Bank Deposits

(Dollars in Millions)

Year 1Chicago Region Midwest United States

1994 $144,331 $524,757 $3,156,619,619

1995 $146,112 $542,376 $3,214,678,337

1996 $153,175 $563,404 $3,328,302,607

1997 $165,403 $594,189 $3,496,762,864

1998 $166,459 $612,279 $3,657,849,328

1999 $173,385 $630,877 $3,783,553,908

2000 $190,107 $667,094 $4,003,744,079

2001 $201,231 $707,187 $4,326,207,001

2002 $212,037 $738,746 $4,606,091,939

2003 $223,058 $806,122 $5,132,110,038

2004 $222,022 $795,405 $5,464,782,399

Compounded

Annual Growth Rate

1994-2004 4.4% 4.2% 5.6%

1 12 months ended June 30.

Source: Federal Deposit Insurance Corporation (FDIC)


City of Chicago



billion in 2004 and has over 39,000 employees. The brokerage and risk management firm Aon Corporation, ranked 218th on the Fortune 500 list, had revenues of $10.2 billion in 2004 and has 52,000 employees in 500 offices in more than 120 countries. Arthur J. Gallagher & Company is located in suburban Itasca and, according to Forbes, is the third largest insurance brokerage and risk management firm in the world. In 2004, the firm had $1.5 billion in revenues, employed 8,200 people, and operated in more than 100 countries.

2.6.6 Information

The information sector combines communications, publishing, motion picture and sound recording, and online services. Information sector employment in the Chicago Region decreased at a compounded annual rate of 1.3 percent between 1994 and 2004. This sector was the smallest industry sector in the Chicago Region in terms of employment with approximately 96,000 employees in 2004, which represented 2.1 percent of the Chicago Region’s nonagricultural employment during this period.

The Chicago Region is home to two of the nation’s largest wireless communication companies, with Motorola ranked sixth in net revenues ($27.1 billion in 2003) and U.S. Cellular ranked forty-third ($2.6 billion in 2003) by Crain’s Chicago Business. With approximately $5.6 billion in net revenues, Tribune Company is the largest employer in the information sector in the Chicago Region according to World Business Chicago. Tribune Company employs approximately 24,000 people worldwide and operates 14 leading daily newspapers, including the Los Angeles Times, Chicago Tribune, Newsday, and Spanish-language Hoy, plus a wide range of targeted publications. The company’s broadcasting group operates 26 television stations, Superstation WGN on national cable, Chicago’s WGN-AM, and the Chicago Cubs baseball team.

2.6.7 Services

Services employment in the Chicago Region increased at a 2.0 percent compounded annual growth rate between 1994 and 2004. In 2004, the services sector accounted for approximately 1.8 million jobs in the Chicago Region (40.9 percent of total nonagricultural employment), the highest employment level among all the sectors.

Travel and Tourism

According to the Chicago Convention and Tourism Bureau, the travel and tourism industry is one of the largest services industry employers in the Chicago Region. Approximately 32 million people traveled to Chicago in 2004. As discussed earlier, the City’s McCormick Place is the Chicago Region’s primary convention center and is the nation’s largest exhibition hall with 2.2 million square feet of available space (to be expanded by an additional 470,000 square feet of exhibition space and 250,000 square feet of meeting space scheduled to be completed in 2008). The Chicago Convention and Tourism Bureau reports that, in 2003, Cook County hosted an estimated 6.9 million people for conventions, trade shows, and exhibitions.

In support of conventions at McCormick Place, approximately 30,000 hotel rooms are located in the central business district and approximately 100,000 hotel rooms are located in metropolitan Chicago. According to the Chicago Convention and Tourism Bureau, the largest hotel in the Chicago Region in 2004 was the Hyatt Regency Chicago, with 2,015 rooms. Since 2003, approximately 900 hotel rooms have been added in downtown Chicago, with an additional 800 rooms in three new properties scheduled to be completed in 2005.

Renowned architects such as Louis H. Sullivan, Frank Lloyd Wright, and Ludwig Mies van der Rohe designed buildings in the Chicago Region that have become Chicago landmarks. Every year, an estimated 600,000 people attend lectures, exhibits, and architecture tours sponsored by the Chicago Architecture Foundation. According to the Chicago Convention and Tourism Bureau, additional major tourism attractions in the Chicago Region and their attendance in 2004 include: Navy Pier (8.8 million visitors), Lincoln Park Zoo (3.0 million visitors), Shedd Aquarium (1.9 million visitors), the Art Institute of Chicago (1.6 million visitors), the Field Museum of Natural History (1.4 million visitors), the Museum of Science and Industry (1.3 million visitors), Sears Tower Skydeck (1.3 million visitors), the Chicago Cultural Center (767,000 visitors), the

City of Chicago



Chicago Children’s Museum (620,000 visitors), the Chicago Symphony Orchestra (525,000 visitors), and the Adler Planetarium & Astronomy Museum (400,000 visitors).

Recreational and Sports Activities

The Chicago Region hosts a significant number of outdoor festivals, attractions, and events annually. As reported by the City’s Office of Special Events some of the best-known events and attractions include the annual Taste of Chicago (3.6 million visitors in 2004) and the Chicago Air and Water Show (2.2 million visitors in 2004). Other major events and attractions in the Chicago Region in 2004 included the Chicago Blues Festival (680,000 visitors), Venetian Night (600,750 visitors), the Country Music Festival (600,000 visitors), the Chicago Symphony Orchestra (550,000 visitors), the Chicago Jazz Festival (300,000 visitors), and the Chicago Gospel Festival (260,000 visitors).

Major spectator sports in the Chicago Region include Big Ten Conference collegiate sports at Northwestern University, Big East Conference collegiate sports at DePaul University, professional football (Chicago Bears), professional baseball (Chicago Cubs and Chicago White Sox), professional basketball (Chicago Bulls), professional soccer (Chicago Fire), and professional hockey (Chicago Blackhawks of the National Hockey League and the Chicago Wolves of the American Hockey League). These professional sports teams attract an estimated 7.4 million attendees annually. The Chicago Marathon registered more than 40,000 participants and attracted more than 1.2 million spectators in October 2003. Since 1991, Cog Hill Golf & Country Club, located approximately 28 miles southwest of downtown Chicago, has hosted the Professional Golf Association’s Western Open tournament, which has attracted approximately 200,000 spectators each year.

According to the Chicago Park District, there are 7,300 acres of park space in 552 parks in the City. In July 2004, the City opened the 24.5-acre Millennium Park in downtown Chicago. Among its many features are a 120-foot-high pavilion designed by Frank Gehry, with 4,000 seats and lawn space for an additional 7,000 people, a 2.5-acre garden, and a 110-ton Cloud Gate sculpture designed by Anish Kapoor. More than 2.5 million people visited Millennium Park during its first year.

Medical and Health

The Chicago Region is home to numerous national health care organizations: the American Medical Association, the American Hospital Association, the American Dental Association, and the American College of Surgeons.

There are approximately 100 hospitals in the Chicago Region, with 25,600 beds. Chicago Region hospitals employ over 154,000 people and contribute $12 billion to the local economy. The largest private hospital in the area is Rush-Presbyterian-St. Luke's Medical Center (700 beds) and the largest public hospital is John H. Stroger, Jr. Hospital of Cook County, which includes 1.2 million square-feet of space, 465 beds, and an adjacent 2,100-space parking garage.

Advocate Health Care, recognized as one of the top 10 health care delivery systems in the country, is the largest health care system in the Chicago Region. It has eight hospitals with a total of 3,500 beds, over 200 sites of care, and is affiliated with over 4,600 physicians. With approximately 25,000 employees, Advocate Health Care is the sixth largest employer in the Chicago Region and the second largest in the private sector. Its primary academic and teaching affiliation is with the University of Illinois at Chicago Health Sciences Center.

Another prominent health institution in the Chicago Region is the University of Chicago Hospitals and Health System. The system has 580 beds and is regarded as one of the best hospitals in the nation. U.S. News and World Report, in its annual survey of hospitals, has consistently listed the University of Chicago Hospitals in its top 20 best hospitals in the United States. In 2004, the University of Chicago Hospitals was selected in the top 20 in five different specialties, including cancer research, digestive disorders, and rheumatology.

City of Chicago



Higher Education

Higher education in the Chicago Region is provided by 37 four-year colleges and universities that enroll 226,000 students. In addition, numerous community colleges, business schools, and technical schools offer a wide range of continuing education opportunities. University of Illinois at Chicago, the largest university in the Chicago Region with 24,900 full- and part-time students, awards graduate, professional, bachelor’s, and associate’s degrees in more than 230 fields of study through 15 schools and colleges. In addition, it offers doctorate degrees in nearly 60 specialties, including engineering, medicine, dentistry, mathematics, and education.

Other colleges or universities in the Chicago Region in 2004 include Northern Illinois University (24,800 students), DePaul University (23,600 students), Northwestern University (17,700 students), University of Chicago (13,900 students), Loyola University Chicago (13,900 students), Northeastern Illinois University (12,200 students), Columbia College (10,400 students), Roosevelt University (7,400 students), National Lewis University (7,300 students), Chicago State University (6,800 students), and Illinois Institute of Technology (6,400 students). Harry S. Truman College, with an enrollment of 14,000 students, is the largest of seven colleges that constitute the City Colleges of Chicago that enrolled a total of 64,000 students in 2004.4

2.6.8 Government

Government employment in the Chicago Region increased at a compounded annual growth rate of 0.8 percent between 1994 and 2004. In 2004, this sector accounted for approximately 567,000 employees in the Chicago Region (12.7 percent of total nonagricultural employment).

The government sector in metropolitan Chicago includes federal, state, county, and city employees. Federal employers within the Chicago Region include the Internal Revenue Service, Social Security Administration, Department of Agriculture, Seventh Circuit Court of Appeals, U.S. Postal Service, and many other entities. As of August 2005, the federal government employed approximately 78,000 people within the Chicago Region across a variety of functions and agencies. Other major governmental employers in the Chicago Region include the Chicago Public Schools (43,783 employees as of August 2005) and the City of Chicago (39,675 employees as of August 2005).

4 Estimates of 2004 college and university enrollments were provided by World Business Chicago.

City of Chicago




City of Chicago



Air Traffic

This chapter describes historical and projected air traffic at the Airport, including enplaned passengers, aircraft operations, and landed weight. This chapter examines the airlines serving the Airport, historical Airport activity, the aviation industry, and the factors affecting aviation demand.

3.1 Airlines Serving the Airport

As of October 2005, 24 U.S. flag airlines provided scheduled passenger service at the Airport; 28 foreign-flag airlines provided scheduled and nonscheduled passenger service; and 5 nonscheduled charter airlines also provided passenger service. In addition, as of October 2005, 23 all-cargo carriers provided scheduled service at the Airport. Table 3.1 lists the airlines serving the Airport as of October 2005.

Table 3.2 presents the scheduled U.S. flag airlines that have served the Airport since 1996. As shown, the Airport has had the benefit of a large and growing airline base during the years shown, which has helped promote competitive pricing and scheduling diversity in the Airport’s major domestic markets. As also shown, 9 of the 24 U.S. flag airlines currently serving the Airport, including 8 of the major passenger airlines, have operated at O’Hare each year since 1996. Activity by the busiest U.S. flag airlines serving the Airport is discussed below:

United, with a 38.0 percent share of Airport enplaned passengers in 2004, provides nonstop service from the Airport to 61 domestic markets and 20 international markets. United’s lower-fare service provider, Ted, began operating at the Airport in May 2004 and provides service to 5 of the 61 domestic markets United serves from the Airport. Operating as United Express, Air Wisconsin, Atlantic Coast Airlines, Chautauqua Airlines, Mesa Airlines, SkyWest Airlines, and Trans States Airlines had a combined 10.5 percent share of Airport enplaned passengers in 2004; and provide nonstop service to 55 additional markets from the Airport.1

American, with a 28.4 percent share of Airport enplaned passengers in 2004, provides nonstop service to 48 domestic markets and 18 international markets. American Eagle, a subsidiary of American, had an 8.0 percent share of Airport enplaned passengers in 2004; and provides nonstop service to 51 additional markets.

Other U.S. flag airlines ranked in the top 10 at the Airport for enplaned passenger market share in 2004 include Delta, Northwest, US Airways, and Continental. These four airlines had a combined 5.3 percent share of Airport enplaned passengers in 2004 and provide nonstop service to a total of 11 domestic markets.

Table 3.3 presents the foreign-flag airlines that have served the Airport since 1996. As shown, 18 of the 27 foreign-flag airlines currently serving the Airport have operated at O’Hare each year since 1996. Activity by the busiest foreign flag airlines serving the Airport is discussed below:

Mexicana de Aviacion, with a 0.8 percent share of Airport enplaned passengers in 2004 (5.6 percent of international enplaned passengers) provides nonstop service to Guadalajara, Mexico City, Monterrey, Morelia, and Zacatecas.

Air Canada, with a 0.7 percent share of Airport enplaned passengers in 2004 (5.1 percent of international enplaned passengers), provides nonstop service to Montreal, Ottawa, and Toronto.

Lufthansa German Airlines, with a 0.7 percent share of Airport enplaned passengers in 2004 (5.0 percent of international enplaned passengers), provides nonstop service to Frankfurt and Munich.

1 Atlantic Coast Airlines discontinued its code-share arrangement with United in August 2004 and currently operates at the

Airport as Independence Air, a low-cost carrier.

City of Chicago



Table 3.1

Airlines Serving the Airport 1

Scheduled U.S. Carriers (24) Foreign-Flag Carriers (28) Nonscheduled Charter Carriers (5) All-Cargo Carriers (23)

Air Wisconsin (United Express) Aer Lingus ATA2

Air China

Alaska Air Canada 3

Casino Express Air New Zealand

America West 4

Air France Miami Air Airborne Express

American Air India Ryan International Asiana

American Eagle Air Jamaica Transmeridian Atlas Air 5

Chautauqua (United Express) Alitalia Cargolux

Comair (Delta Connection) Asiana China

Continental Aviacsa China Eastern

Delta6

British Airways DHL Airways

ExpressJet (Continental Express) British Midland Eva Airways

GoJet (United Express) Cayman Airways Evergreen

Independence Air 7

Cross/Swiss FedEx

Mesa (United Express) El Al Israel Florida West International

Mesaba (Northwest Airlink) 8

Iberia Kalitta Air

MidAtlantic Airways (US Airways Express) Japan Lufthansa Cargo

Northwest9

Jazz Air Martin Air Holland, N.V.

Pinnacle (Northwest Airlink) KLM Royal Dutch Nippon Airways (ANA)

Shuttle America (United Express) Korean Air Polar Air Cargo 5

SkyWest (United Express) Kuwait Airways Qantas Airways

Spirit LOT Polish Singapore Cargo

Trans States (United Express) Lufthansa German Southern Air

United/Ted (United low-fare service) 10

Mexicana United Parcel Service

US Airways 4, 11

Pakistan UPS - Supply Chain Solution

USA 3000 Privatair SA

Royal Jordanian

SAS

TACA

Turkish

1As of October 2005.

2ATA filed for reorganization under Chapter 11 of the Bankruptcy Code on October 26, 2004.

3Air Canada filed for reorganization under Canada's Companies' Creditors Arrangement Act on April 1, 2003. It emerged from

bankruptcy protection on September 30, 2004.4 On September 27, 2005, US Airways completed its merger with America West.

5Atlas Air/Polar Air Cargo filed for reorganization under Chapter 11 of the Bankruptcy Code on January 30, 2004. Atlas Air/Polar Air Cargo

emerged from Chapter 11 on July 27, 2004.6

Delta filed for reorganization under Chapter 11 of the Bankruptcy Code on September 14, 2005.7

Independence Air filed for reorganization under Chapter 11 of the Bankruptcy Code on November 7, 2005.8

Mesaba filed for reorganization under Chapter 11 of the Bankruptcy Code on October 13, 2005.9

Northwest filed for reorganization under Chapter 11 of the Bankruptcy Code on September 14, 2005.10

United filed for reorganization under Chapter 11 of the Bankruptcy Code on December 9, 2002.11

US Airways filed for reorganization under Chapter 11 of the Bankruptcy Code on August 11, 2002. It emerged from Chapter 11 on

March 31, 2003. US Airways again filed for Chapter 11 bankruptcy protection on September 12, 2004. It emerged from Chapter 11

on September 16, 2005.

Source: City of Chicago, Department of Aviation Management Records


City of Chicago



Table 3.2

Scheduled U.S. Flag Air Carrier Base

Air Carrier 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1

Air Wisconsin

America West 2

American

American Eagle

Continental

Delta 3

Northwest 4

United/Ted 5

US Airways 2, 6

Atlantic Coast/Independence Air 7

Alaska

Comair

Spirit

Mesa

ExpressJet

Chautauqua

SkyWest

Trans States

USA 3000

Mesaba 8

GoJet

MidAtlantic

Pinnacle

Shuttle America

U.S. Flag Airlines No Longer Serving the Airport

Atlantic Southeast

Great Lakes

North American

National

Sun Country

1 As of October 2005.2 On September 27, 2005, US Airways completed its merger with America West.3 Delta filed for reorganization under Chapter 11 of the Bankruptcy Code on September 14, 2005.4 Northwest filed for reorganization under Chapter 11 of the Bankruptcy Code on September 14, 2005.5 United filed for reorganization under Chapter 11 of the Bankruptcy Code on December 9, 2002.6 US Airways filed for reorganization under Chapter 11 of the Bankruptcy Code on August 11, 2002. It emerged from Chapter 11 on

March 31, 2003. US Airways again filed for Chapter 11 bankruptcy protection on September 12, 2004. It emerged from Chapter 11

on September 16, 2005.7 Atlantic Coast discontinued its code-share arrangement with United in August 2004 and currently operates at the Airport as the low-cost carrier Independence Air.

Independence Air filed for reorganization under Chapter 11 of the Bankruptcy Code on November 7, 2005.8 Mesaba filed for reorganization under Chapter 11 of the Bankruptcy Code on October 13, 2005.

Sources: City of Chicago, Department of Aviation Management Records

Official Airline Guide, Inc.


City of Chicago



E-51

Table 3.3

Foreign Flag Air Carrier Base

Air Carrier 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1

Air Canada 2

Air France

Alitalia

British

Cross/Swiss

El Al

Japan

KLM-Royal Dutch

Korean

LOT-Polish

Lufthansa

Mexicana

Royal Jordanian

Air Jamaica

Kuwait

SAS

Air India

Aer Lingus

Turkish

Iberia

AeroMexico

British Midland

Aviacsa

Cayman

Privatair

Asiana

Jazz Air

TACA

Foreign Flag Carriers No Longer Serving the Airport

LACSA

Allegro

Singapore

Aeroflot

Sabena

Nippon

Virgin Atlantic

Austrian

Tarom

TAESA

1 As of October 2005.2 Air Canada filed for reorganization under Canada's Companies' Creditors Arrangement Act on April 1, 2003.

It emerged from bankruptcy protection on September 30, 2004.

Sources: City of Chicago, Department of Aviation Management Records

Official Airline Guide


City of Chicago



E-52

3.2 Historical Airport Activity

The following sections present a review of the Airport’s historical passenger activity, air service, aircraft operations, aircraft landed weight, and cargo activity.

3.2.1 Passenger Activity

Total Enplaned Passengers

Table 3.4 presents historical data on total enplaned passengers (passengers on domestic and international flights combined) at the Airport. As shown, total enplaned passengers at the Airport increased 4.6 percent in 2003 and 8.7 percent in 2004, resulting in the Airport reaching a record high 37.4 million total enplaned passengers in 2004. By comparison, total enplaned passengers nationwide increased 2.6 percent in 2003 and 7.2 percent in 2004. Previously, the Airport experienced 2 years of decreasing numbers of enplaned passengers in 2001 and 2002, during a period that included the terrorist attacks of September 11 and the nationwide economic slowdown. These results followed moderate growth in the latter half of the 1990s, with the total number of enplaned passengers at the Airport increasing from 32.8 million in 1994 to 35.7 million in 2000.

Domestic Enplaned Passengers

Table 3.4 also provides a breakdown of Airport enplaned passengers into domestic and international components. As shown, domestic enplaned passengers at the Airport increased 4.7 percent in 2003 and 7.6 percent in 2004, resulting in the Airport reaching a record high 32.2 million domestic enplaned passengers in 2004. The increase in domestic enplaned passengers during this period was primarily the result of the following: (1) increased hubbing activity at the Airport by American and American Eagle as a byproduct of downsizing its hub at Lambert-St. Louis International Airport in November 2003 and (2) United’s increased service/lowered fares in reaction to the initiation of low-fare service by Independence Air at the Airport in mid-2004, as well as the initiation of United’s lower-fare service Ted to certain Florida markets during this same period. The number of domestic enplaned passengers on American and American Eagle increased 2.3 million between 2002 and 2004 (compounded annual growth rate of 10.4 percent); while the number of domestic enplaned passengers on United Express carriers increased 1.5 million (compounded annual growth rate of 28.0 percent) during this same period. Previously, the Airport experienced 2 years of decreasing numbers of domestic enplaned passengers, during a period that included the terrorist attacks of September 11 and the nationwide economic slowdown. These results followed moderate growth in the latter half of the 1990s, with the total number of domestic enplaned passengers at the Airport increasing from 29.7 million in 1994 to 30.7 million in 2000.

International Enplaned Passengers

Based on enplaned international passengers, the Airport was the fourth-largest international gateway in the United States. Table 3.4 also presents historical data on international enplaned passengers (i.e., passengers enplaned on international flights) at the Airport. As shown, international enplaned passengers at the Airport increased 4.3 percent in 2003 and 16.0 percent in 2004, resulting in the Airport reaching a record high 5.3 million international enplaned passengers in 2004. The significant increase in 2004 was primarily the result of the abatement of severe acute respiratory syndrome (SARS) in Asia and Canada, the end of the initial phase of the Iraqi War, as well as United’s initiation of service to new international markets (e.g., Osaka) and expansion of service to existing markets (e.g., Hong Kong) during this period. The number of international enplaned passengers on United increased more than 500,000 in 2004 compared to 2003. Previously, the Airport experienced 2 years of decreasing numbers of international enplaned passengers in 2001 and 2002, during a period that included the terrorist attacks of September 11 and the outbreak of SARS in Asia and Canada. These results followed significant growth in the latter half of the 1990s, with the total number of international enplaned passengers at the Airport increasing from 3.0 million in 1994 to 5.0 million in 2000.

City of Chicago



Table 3.4

Historical Enplaned Passengers 1

Enplaned Annual Enplaned Annual Enplaned Annual

Year Passengers Growth Passengers Growth Passengers Growth

1994 29,718,206 - 3,040,777 - 32,758,983 -

1995 29,557,080 (0.5%) 3,298,380 8.5% 32,855,460 0.3%

1996 30,538,500 3.3% 3,529,385 7.0% 34,067,885 3.7%

1997 30,889,194 1.1% 3,889,544 10.2% 34,778,738 2.1%

1998 31,453,453 1.8% 4,336,508 11.5% 35,789,961 2.9%

1999 31,190,715 (0.8%) 4,757,001 9.7% 35,947,716 0.4%

2000 30,651,752 (1.7%) 5,049,197 6.1% 35,700,949 (0.7%)

2001 28,693,866 (6.4%) 4,616,363 (8.6%) 33,310,229 (6.7%)

2002 28,560,357 (0.5%) 4,358,579 (5.6%) 32,918,936 (1.2%)

2003 29,889,369 4.7% 4,544,163 4.3% 34,433,532 4.6%

2004 32,172,058 7.6% 5,272,490 16.0% 37,444,548 8.7%

Compounded

Annual Growth Rate

1994 - 2000 0.5% 8.8% 1.4%

2000 - 2002 (3.5%) (7.1%) (4.0%)

2002 - 2004 6.1% 10.0% 6.7%

1Excludes general aviation, military, helicopter, and miscellaneous passengers included in the City of Chicago's

Airport Activity Statistics.



Domestic International Total

City of Chicago



Enplaned Passengers by Airline

Table 3.5 presents total enplaned passengers by airline at the Airport for 2000 through 2004. As shown, the combined share of total Airport enplaned passengers for United and American steadily decreased during this period, from 74.4 percent in 2000 to 66.4 percent in 2004. This decrease in mainline share of enplaned passengers by these airlines was primarily caused by the shifting of their mainline activity to their respective regional/commuter airline partners. The combined share of United’s regional/commuter partners Air Wisconsin, Atlantic Coast, Chautauqua, Mesa, SkyWest, and Trans States increased from 3.2 percent in 2000 to 10.5 percent in 2004, while American Eagle’s share increased from 4.6 percent to 8.0 percent during this same period.2 As a result, the combined share of total Airport enplaned passengers on United and its regional/commuter partners remained relatively the same between 2000 and 2004, increasing slightly from 46.0 percent in 2000 to 48.5 percent in 2004; and American and American Eagle’s combined share remained stable during this same period, increasing from 36.2 percent to 36.4 percent between 2000 and 2004. In general, the other airlines’ shares of enplaned passengers also remained relatively stable between 2000 and 2004.

3.2.2 Air Service

An important characteristic of airport activity is the distribution of the airport’s O&D markets, which is a function of air travel demands and available services and facilities. Table 3.6 presents 2004 data on the Airport’s top 50 domestic O&D markets, as measured by the number of passengers. Given the Airport’s central location in the United States, the domestic O&D markets are predominately medium-haul (between 601 and 1,800 miles) markets (only 4 of the Airport’s top 50 O&D domestic markets are long-haul markets); 33 of the top 50 O&D markets for the Airport are medium-haul markets. As shown, the Airport’s top 50 domestic O&D markets in 2004 had an average stage length (i.e., passenger trip distance) of 991 miles, compared to an average stage length of 973 miles nationwide. The average stage length for the Airport has historically been relatively equal to that for the nation, reflecting the Airport’s central U.S. location and the strong demand for service to East Coast markets such as New York-Newark and Washington, D.C., and to West Coast markets such as Los Angeles, Las Vegas, Phoenix, and San Francisco.

As also shown in Table 3.6, each of the Airport’s top 50 domestic O&D markets in 2004 is provided with nonstop service. The New York-Newark market, the Airport’s top-ranked domestic O&D market, is provided with 399 weekly nonstop flights from the Airport.3 Other domestic markets with significant nonstop service from the Airport include Washington, D.C. (288 weekly nonstop flights), Minneapolis-St. Paul (212 weekly nonstop flights), Dallas-Fort Worth (177 weekly nonstop flights), and Atlanta (163 weekly nonstop flights).

The number of scheduled weekly nonstop flights from the Airport to its top 50 O&D markets by airline between October 10, 2005 and October 16, 2005, is presented in Table 3.7. As shown, the U.S. flag airlines provided 8,011 weekly nonstop flights to domestic markets (approximately 1,150 domestic flights per day) and 508 weekly nonstop flights to international markets (approximately 75 international flights per day) during this period. As also shown, the foreign-flag airlines provided 292 weekly nonstop flights to international markets.

Table 3.8 presents data on the Airport’s top 50 international O&D markets for 2002, the latest calendar year for which such data are available. As shown, numerous international markets are represented, including Mexico, Central and South America, the Caribbean, Europe, and the Pacific.

2 Atlantic Coast Airlines discontinued its code-share arrangement with United in August 2004 and currently operates at the

Airport as Independence Air, a low-cost carrier. 3 The New York-Newark market is served by John F. Kennedy International Airport, LaGuardia Airport, and Newark Liberty

International Airport.

City of Chicago



Table 3.5

Historical Total Enplaned Passengers by Airline 1

Enplaned Enplaned Enplaned Enplaned Enplaned

Airline Passengers Share Passengers Share Passengers Share Passengers Share Passengers Share

1 United/Ted 215,284,974 42.8% 14,057,822 42.2% 13,935,560 42.3% 13,780,164 40.0% 14,222,780 38.0%

2 American 11,282,511 31.6% 10,001,205 30.0% 9,436,168 28.7% 9,552,465 27.7% 10,641,646 28.4%

3 American Eagle 1,626,148 4.6% 1,666,814 5.0% 1,841,764 5.6% 2,319,637 6.7% 2,993,453 8.0%

4 Air Wisconsin (UAX) 794,489 2.2% 987,094 3.0% 854,881 2.6% 1,561,285 4.5% 2,172,712 5.8%

5 Atlantic Coast(UAX) /

Independence Air 3 347,958 1.0% 648,725 1.9% 1,406,700 4.3% 1,829,053 5.3% 819,572 2.2%

6 Delta 41,040,698 2.9% 874,228 2.6% 658,086 2.0% 616,039 1.8% 607,226 1.6%

7 SkyWest (UAX in 2004) - - - - - - 13,177 0.0% 598,667 1.6%

8 Northwest 5700,337 2.0% 603,497 1.8% 527,303 1.6% 547,737 1.6% 505,278 1.3%

9 US Airways 6, 7565,734 1.6% 511,322 1.5% 532,549 1.6% 465,034 1.4% 489,918 1.3%

10 Continental 600,994 1.7% 525,146 1.6% 461,407 1.4% 437,571 1.3% 423,693 1.1%

11 Spirit 25,900 0.1% 223,173 0.7% 298,044 0.9% 367,994 1.1% 369,645 1.0%

12 America West 7284,715 0.8% 306,385 0.9% 310,056 0.9% 342,750 1.0% 367,469 1.0%

13 Mexicana 337,235 0.9% 309,416 0.9% 259,022 0.8% 270,970 0.8% 295,419 0.8%

14 Air Canada 8 333,599 0.9% 352,240 1.1% 344,910 1.0% 270,105 0.8% 268,824 0.7%

15 Lufthansa 228,366 0.6% 210,130 0.6% 235,259 0.7% 249,744 0.7% 263,124 0.7%

Other 92,247,291 6.3% 2,033,032 6.1% 1,817,227 5.5% 1,809,807 5.3% 2,405,122 6.4%

AIRPORT TOTAL 1035,700,949 100.0% 33,310,229 100.0% 32,918,936 100.0% 34,433,532 100.0% 37,444,548 100.0%

UAX = United Express carrier

1 For those airlines that were party to a merger or acquisition during the years shown, only the acquiring entity is presented in this table. However, the activity for the airline(s)

that are now a part of the acquiring airline is included in the information presented.2 United filed for reorganization under Chapter 11 of the Bankruptcy Code on December 9, 2002.3 Atlantic Coast discontinued its code-share arrangement with United in August 2004 and currently operates at the Airport as the low-cost carrier Independence Air.

Independence Air filed for reorganization under Chapter 11 of the Bankruptcy Code on November 7, 2005. Atlantic Coast operating as UAX had a total of 770,768

enplanements in 2004 (2.1 percent share). Independence Air had a total of 48,804 enplanements in 2004 (0.1 percent share).4 Delta filed for reorganization under Chapter 11 of the Bankruptcy Code on September 14, 2005.5 Northwest filed for reorganization under Chapter 11 of the Bankruptcy Code on September 14, 2005.6 US Airways filed for reorganization under Chapter 11 of the Bankruptcy Code on August 11, 2002. It emerged from Chapter 11 on March 31, 2003.

US Airways again filed for Chapter 11 bankruptcy court protection on September 12, 2004. It emerged from Chapter 11 on September 16, 2005.7 On September 27, 2005, US Airways completed its merger with America West.8 Air Canada filed for reorganization under Canada's Companies' Creditors Arrangement Act on April 1, 2003. It emerged from bankruptcy protection on September 30, 2004.9 Includes other United Express carriers that had a total of 400,078 enplaned passengers in 2004 (a combined share of 1.1 percent during this period). 10 Columns may not add to totals shown because of rounding.



2003 2004200220012000

City of Chicago



E-56

Table 3.6

Domestic O&D Passenger Markets - 2004

Weekly

Nonstop Number Trip Total O&D

Rank Market Flights 1of Airlines Length 2

Passengers

1 New York/Newark 399 7 MH 2,098,440

2 Los Angeles 152 2 MH 1,134,640

3 Washington, D.C. 288 7 MH 1,087,050

4 Las Vegas 125 3 MH 946,330

5 Phoenix 97 3 MH 878,020

6 Atlanta 163 5 MH 787,770

7 Philadelphia 148 4 MH 751,290

8 Orlando 77 3 MH 718,150

9 San Francisco 115 2 LH 711,920

10 Dallas 177 3 MH 687,670

11 Boston 147 2 MH 675,730

12 Fort Lauderdale 35 3 MH 597,340

13 Denver 122 2 MH 578,600

14 Detroit 141 3 SH 538,250

15 Houston 124 6 MH 505,070

16 Tampa 49 2 MH 471,270

17 Minneapolis 212 6 SH 454,170

18 Seattle 103 3 MH 429,840

19 Santa Ana 61 2 MH 391,050

20 San Diego 83 2 MH 387,690

21 Baltimore 62 2 MH 374,360

22 St Louis 135 4 SH 366,090

23 Miami 63 2 MH 340,330

24 Kansas City 89 4 SH 339,740

25 Fort Myers 20 3 MH 322,870

26 Cleveland 155 4 SH 319,210

27 Hartford 82 3 MH 290,630

28 Pittsburgh 102 5 SH 277,670

29 Raleigh 77 3 MH 249,840

30 Portland (OR) 61 2 MH 243,900

31 Charlotte 117 4 SH 240,540

32 New Orleans 3

7 1 MH 234,340

33 Austin 69 3 MH 227,720

34 San Juan 16 2 LH 221,750

35 Providence 54 3 MH 219,500

36 Columbus 115 5 SH 215,440

37 Salt Lake City 63 4 MH 204,650

38 San Jose 53 2 LH 203,170

39 Cincinnati 154 6 SH 199,900

40 Westchester County 82 2 MH 188,190

41 San Antonio 55 3 MH 186,560

42 Nashville 92 5 SH 175,450

43 Tucson 21 1 MH 147,260

44 Sacramento 35 1 MH 145,890

45 Honolulu 14 2 LH 139,520

46 Memphis 90 4 SH 137,040

47 Richmond 81 5 MH 136,670

48 Omaha 90 4 SH 121,140

49 Indianapolis 118 6 SH 118,490

50 Palm Beach 7 1 MH 115,920

Other Markets 3,014 4,715,960

TOTAL 8,011 26,250,030

Weighted Average Trip Length

Airport 4991 miles

United States 973 miles

1 For the week of October 10, 2005 through October 16, 2005.2 (SH) Short Haul = 1 to 600 miles

(MH) Medium Haul = 601 to 1,800 miles

(LH) Long Haul = over 1,800 miles3 Temporary due to the effects of Hurricane Kratina and Hurricane Rita in

September 2005. There were a total of 49 weekly nonstop flights

provided by three airlines from O'Hare to Louis Armstrong

New Orleans International Airport between September 13, 2004 and

September 19, 2004.4 Weighted average calculated for all of the Airport's O&D markets.

Sources: US DOT Origin & Destination Survey of Airline Passenger Traffic, Domestic

Official Airline Guide, Inc.


City of Chicago



Table 3.7

Scheduled Nonstop Activity for U.S. Flag and Foreign Flag Carriers 1

International

U.S. Flag Air Carrier Number of Markets Weekly Flights Markets Served Weekly Flights Foreign Flag Air Carrier Markets Served Weekly Flights

United/Ted 2 59 1,881 Amsterdam, Aruba, Beijing, Calgary, Frankfurt,

Hong Kong, London, Los Cabos, Osaka, Mexico

City, Montego Bay, Munich, Paris, Sao Paulo,

Shanghai, Tokyo, Toronto, Vancouver

207 Air Canada 3 Montreal, Ottawa, Toronto 72

American 46 1,582 Brussels, Cancun, Dublin, Frankfurt, London, Los

Cabos, Manchester, Mexico City, Montreal,

Nagoya, Paris, Puerto Vallarta, Rome, Tokyo,

Toronto

159 Mexicana Guadalajara, Mexico City,

Monterrey, Morelia,

Zacatecas

52

American Eagle 55 1,642 Montreal, Nassau, Ottawa 49 British Airways London 21

SkyWest 48 797 Winnipeg 15 Lufthansa Frankfurt, Munich 21

Air Wisconsin 33 553 Calgary, Edmonton 34 SAS Copenhagen, Stockholm 14

Mesa 20 277 Japan Tokyo 10

Shuttle America 16 221 LOT Polish Krakow, Warsaw 8

Northwest 4 3 145 Ottawa 41 Aer Lingus Dublin 7

Trans States 8 139 Air France Paris 7

Chautauqua 10 121 Air India Frankfurt, London 7

Continental 2 96 Alitalia Milan 7

U.S.Airways 6, 7 3 96 Aviacsa Monterrey 7

Delta 5 3 95 British Midland Manchester 7

Comair 2 66 Iberia Madrid 7

America West 7 2 63 KLM-Royal Dutch Amsterdam 7

ExpressJet 3 62 Korean Seoul 7

GoJet 3 42 Swiss Zurich 7

Independence Air 8 1 34 Privatair Dusseldorf 5

MidAtlantic 3 31 Air Jamaica Montego Bay 4

Alaska 2 28 Turkish Istanbul 3

Spirit 3 21 Asiana Seoule 3

Pinnacle 1 7 Montego Bay, Punta Cana 3 TACA Guatemala City 3

Mesaba 9 1 6 Jazz Air Montreal, Toronto 2

USA 3000 2 6 Royal Jordanian Amman 2

Kuwait Geneva 2

TOTAL 8,011 508 TOTAL 292

1 For the week of October 10, 2005 through October 16, 2005.2 United filed for reorganization under Chapter 11 of the Bankruptcy Code on December 9, 2002.3 Air Canada filed for reorganization under Canada's Companies' Creditors Arrangement Act on April 1, 2003. It emerged from bankruptcy protection on September 30, 2004.4 Northwest filed for reorganization under Chapter 11 of the Bankruptcy Code on September 14, 2005.5 Delta filed for reorganization under Chapter 11 of the Bankruptcy Code on September 14, 2005.6 US Airways filed for reorganization under Chapter 11 of the Bankruptcy Code on August 11, 2002. It emerged from Chapter 11 on March 31, 2003. US Airways filed again

for Chapter 11 bankruptcy protection on September 12, 2004. It emerged from Chapter 11 on September 16, 2005.7 On September 27, 2005, US Airways completed its merger with America West.8 Independence Air filed for reorganization under Chapter 11 of the Bankruptcy Code on November 7, 2005.9 Mesaba filed for reorganization under Chapter 11 of the Bankruptcy Code on October 13, 2005.

Sources: Official Airline Guide, Inc.

City of Chicago's Department of Aviation Management Records (Madrid)


Domestic Markets International Markets

City of Chicago



E-58

Nonstop Total O&D

Rank City Country Service Passengers

1 London England 331,250

2 Toronto Canada 242,070

3 Cancun Mexico 216,793

4 Mexico City Mexico 173,910

5 Guadalajara Mexico 151,320

6 Paris France 119,478

7 Tokyo Japan 105,490

8 Dublin Ireland 98,186

9 Amsterdam Netherlands 77,192

10 Frankfurt Germany 71,015

11 Rome Italy 67,507

12 Santo Domingo Dominican Republic 67,109

13 Montego Bay Jamaica 66,679

14 Montreal Canada 66,130

15 Vancouver Canada 64,260

16 Puerto Vallarta Mexico 56,768

17 Stockholm Sweden 56,761

18 Warsaw Poland 52,545

19 Munich Germany 41,957

20 Manchester England 41,165

21 Krakow Poland 38,352

22 Madrid Spain 35,428

23 Brussels Belgium 34,472

24 Acapulco Mexico 34,020

25 Milan Italy 32,338

26 Sao Paulo Brazil 32,058

27 Hong Kong Hong Kong 31,533

28 Nassau Bahamas 31,002

29 Lima Peru 30,983

30 Seoul South Korea 30,664

31 Calgary Canada 30,600

32 Copenhagen Denmark 30,068

33 Aruba Aruba 29,446

34 Athens Greece 29,277

35 Istanbul Turkey 28,717

36 Kingston Jamaica 28,307

37 Singapore Singapore 27,868

38 Santiago Chile 27,800

39 Berlin Germany 27,299

40 Beijing China 27,180

41 Morelia Mexico 26,296

42 Grand Cayman Cayman Islands 26,037

43 Bangkok Thailand 25,917

44 San Jose Costa Rica 25,387

45 Tel Aviv Israel 25,337

46 Buenos Aires Argentina 24,809

47 Barcelona Spain 23,786

48 Zacatecas Mexico 23,383

49 Manila Philippines 22,986

50 Taipei Taiwan 22,873

Other Markets 1,378,787

TOTAL 4,410,595

1Canadian markets only include U.S. flag carriers, and data exclude airlines

that do not have aircraft with more then 60 seats.

Sources: U.S. Department of Justice Immigration and Naturalization Service

US DOT Origin & Destination Survey of Airline Passeneger Traffic, International


Table 3.8

International O&D Passenger Markets - 2002 1

City of Chicago



3.2.3 Aircraft Operations

Total Aircraft Operations

Table 3.9 presents numbers of aircraft operations at the Airport by major user group between 1999 and 2004. As shown, total operations at the Airport increased from 896,228 in 1999 to 908,989 in 2000, a 1.4 percent increase during this period. The events of September 11 and the nationwide economic slowdown did not have the same effect on total operations as it did on total enplaned passengers at the Airport. As shown, total operations at the Airport increased 0.3 percent in 2001 and an additional 1.2 percent in 2002, primarily because of a shifting of domestic passenger service from the major/national airlines to their regional/commuter partners. Except for the regionals/commuters, each major user group at the Airport experienced a decrease in operations in 2002 compared with 2001 numbers. Total operations at the Airport increased from 922,817 in 2002 to 992,427 in 2004, a compounded annual growth rate of 3.7 percent during this period. The number of operations reached in 2004 is the highest recorded annual total operations at the Airport in its history.

Domestic Passenger Airline Operations

The shifting of domestic passenger service from the major/national airlines to their regional/commuter partners is especially evident between 2002 and 2004. As shown in Table 3.9, regional/commuter airline aircraft operations increased at a compounded annual growth rate of 18.3 percent during this period, whereas major/national airline aircraft operations decreased 4.4 percent. In particular, operations by United Express carriers and American Eagle increased by approximately 100,000 between 2002 and 2004, while United and American mainline service decreased by approximately 40,000 operations during this same period. This significant shifting of domestic mainline service to regional jets offset decreases in international operations following September 11. As a result, total passenger operations at the Airport increased each year between 1999 and 2004.

Impact of Regional Jets on O’Hare

The ability of the Airport to adjust to changes in the industry is reflected in the recent shifting of certain mainline service to regionals/commuters. The introduction of the regional jet into the dynamics of the demand for air transportation has expanded the role of the regional/commuter industry. The regional jet’s range and speed has created new opportunities, allowing regionals/commuters to serve longer-haul markets and to by-pass congested hub airports by providing point-to-point service. As a result, there has been a shift in both the type and size of aircraft operated by the regional/commuter carriers. According to the FAA, 75 percent of the regional/commuter fleet was composed of piston and turboprop aircraft in 2000. In 2004, over 50 percent of the regional/commuter fleet was comprised of regional jet aircraft (and, also according to the FAA, expected to grow to approximately 75 percent of the fleet by 2016).

This same trend has occurred at the Airport during this same period. In 2000, scheduled domestic departures at the Airport were comprised of 8.3 percent turboprop aircraft and 18.8 percent regional jets. In 2004, scheduled domestic departures by regionals/commuters were conducted entirely by regional jets. This trend is also evident when comparing the regional jets’ share of total scheduled domestic departures at the Airport in 2000 and 2004 (18.8 percent in 2000 compared to 43.2 percent in 2004). As discussed above, this significant shifting of domestic mainline service to regional jets resulted in total passenger operations at the Airport increasing each year between 1999 and 2004.

Impact of Flight Caps on O’Hare

Effective November 1, 2004, the FAA and the domestic airlines serving the Airport agreed to voluntarily limit scheduled Airport arrivals to 88 per hour between 7:00 a.m. and 7:59 p.m. (and to 50 in any half hour) and to 98 scheduled arrivals between 8:00 p.m. and 8:59 p.m. United, American, and their regional/commuter partners, who accounted for 84.9 percent of total enplaned passengers at the Airport in 2004, agreed to the largest reductions. United agreed to reduce its service by 20 arrivals per hour and American agreed to reduce its service by 17 arrivals per hour between 7:00 a.m. and 8:00 p.m. United and United Express combined still

City of Chicago



Domestic International Total

Majors/ Regionals/ U.S. Flag Foreign Passenger General

Nationals Commuters Carriers Flag Carriers Airlines Aviation 1 All Cargo Military Total

1999 575,837 177,854 39,015 39,172 831,878 39,596 23,984 770 896,228

2000 561,862 201,772 39,982 45,182 848,798 35,565 24,626 - 908,989

2001 541,782 230,292 40,320 41,564 853,958 36,854 21,105 - 911,917

2002 539,269 262,345 36,412 33,691 871,717 30,216 20,790 94 922,817

2003 489,822 312,910 40,733 35,722 879,187 28,247 21,257 - 928,691

2004 492,469 367,227 46,698 35,696 942,090 28,749 21,588 - 992,427

Compounded

Anuual Growth Rate

1999 - 2000 (2.4%) 13.4% 2.5% 15.3% 2.0% (10.2%) 2.7% N/A 1.4%

2000 - 2001 (3.6%) 14.1% 0.8% (8.0%) 0.6% 3.6% (14.3%) N/A 0.3%

2001 - 2002 (0.5%) 13.9% (9.7%) (18.9%) 2.1% (18.0%) (1.5%) N/A 1.2%

2002 - 2004 (4.4%) 18.3% 13.2% 2.9% 4.0% (2.5%) 1.9% N/A 3.7%

N/A = not applicable.

1 Includes general aviation, helicopter, and other miscellaneous operations.



Table 3.9

Historical Aircraft Operations

City of Chicago



E-61

operate 588 daily arrivals and American and American Eagle still operate 492 daily arrivals during this time period. The voluntary agreement is expected to reduce delays at the Airport by 20 percent. This agreement, originally set to expire on April 30, 2005, has been extended through an interim FAA order to April 1, 2006 (Despite flight caps imposed by the FAA in order to mitigate delays, year-to-date enplanements through October are 1.2 percent higher than enplanement levels during the same period last year, a year which had the highest number of enplanements in the Airport's history). On March 25, 2005, the FAA issued a notice of proposed rulemaking (NPRM) in the Federal Register to implement a more formal flight reduction rule until April 6, 2008. Other major alternatives the FAA considered to manage congestion and delays at the Airport included (1) letting the voluntary agreement expire and return to the free and open market with no flight caps, (2) extending the voluntary agreement, and (3) using market-based mechanisms such as an auction or congestion pricing. The public comment period on the NPRM closed on May 24, 2005; with 11 respondents, including the City, providing written comments on the NPRM. In its comments, the City stated that the proposal is an unnecessary and harmful attempt to re-impose slot controls at the Airport with uncertain consequences and regulatory authority. The City also stated that the acceleration of the OMP, sunset of the existing FAA Order, and return to a free market system of flight management are far less intrusive measures that will accomplish the intended goal of delay reduction. A decision on this issue by the FAA is forthcoming.

International Passenger Airline Operations

As discussed earlier, the number of international enplaned passengers increased significantly between 2002 and 2004, primarily as a result of a recovery from the events of September 11, the abatement of SARS, the conclusion of the first phase of the Iraqi War, and United’s expansion of its international service at the Airport during this period. As also shown in Table 3.9, international flights operated by U.S.-flag airlines increased from 36,412 in 2002 to 46,698 in 2004, a compounded annual growth rate of 13.2 percent during this period. United’s international flights increased by a total of approximately 5,000 during this period. United Express carriers and American Eagle, which did not provide international service in 2002, provided over 9,000 international operations combined in 2004, primarily to Canada. These significant increases were functions of the strong local demand for international travel generated from the Chicago Region’s economic base, as evidenced by the 4.3 percent increase in international enplaned passengers at the Airport in 2003, followed by a 16.0 percent increase in 2004.

General Aviation Operations

General aviation aircraft operations at the Airport decreased from 39,596 in 1999 to 28,749 in 2004, a compounded annual decrease of 6.2 percent during this period. This decrease in general aviation activity was not unique to the Airport, as general aviation activity nationwide decreased at a compounded annual rate of 5.7 percent during this same period. According to the City’s Department of Aviation, this decrease was primarily the result of lower costs and fewer delays at outlying airports within the Chicago Region, as well as the effects of September 11 and the nationwide economic slowdown. Although general aviation activity at the Airport decreased by nearly 11,000 operations between 1999 and 2004, its highest share of total Airport operations during this period was 4.4 percent in 1999.

All-Cargo Carrier Operations

Operations by the all-cargo airlines at the Airport were relatively stable prior to the effects of September 11 and the nationwide economic slowdown, averaging approximately 24,300 operations in 1999 and 2000. All-cargo airline aircraft operations at the Airport decreased 14.3 percent in 2001 to 21,105 and decreased further by 1.5 percent in 2002 to 20,790. Operations by the all-cargo carriers subsequently increased 2.2 percent and 1.6 percent in 2003 and 2004, respectively, reaching 21,588 operations in 2004. Although all-cargo operations at the Airport in 2004 were 12.3 percent less than all-cargo operations in 2000, this difference is minimal when viewed on a daily flight basis (30 daily flights in 2004 versus 34 daily flights in 2000). As shown later in Table 3.11, total enplaned and deplaned cargo was 6.1 percent higher in 2004 compared to 2000 levels, indicating a more efficient use of aircraft and/or the utilization of larger aircraft for transporting cargo to and from the Airport.

City of Chicago



Military Operations

In 1996, the City purchased from the federal government approximately 350 acres of land in the northeast quadrant of the Airport formerly used as a U.S. Air Force base. In 1999, the largest remaining military unit at the Airport, the 126th Air Refueling Wing, was deactivated and relocated to Scott Air Force Base in St. Clair County, Illinois. As a result, little or no military aircraft operations took place at the Airport between 2000 and 2004.

3.2.4 Landed Weight

Table 3.10 presents the shares of landed weight for the passenger and all-cargo airlines serving the Airport from 2000 through 2004. As shown, the combined share of total Airport landed weight for United and American steadily decreased during this period, from 69.6 percent in 2000 to 59.9 percent in 2004. As discussed earlier, this decrease in share of landed weight by these airlines was primarily due to the shifting of their mainline activity to their respective regional/commuter airline partners. The combined share of landed weight for Air Wisconsin, Atlantic Coast, Chautauqua, Mesa, SkyWest, and Trans States increased from 1.2 percent in 2000 to 8.4 percent in 2004, while American Eagle’s share increased from 3.4 percent to 6.3 percent during this same period. As a result, the combined share of total Airport landed weight for United and its regional/commuter partners increased from 42.6 percent in 2000 to 43.6 percent in 2004; and American and American Eagle’s combined share decreased from 31.5 percent to 31.0 percent during this same period. Similar to shares of enplaned passengers, the other passenger airlines’ share of landed weight generally remained stable between 2000 and 2004. FedEx accounted for the highest share of landed weight among the all-cargo carriers at the Airport between 2000 and 2004, ranging between 1.7 percent and 2.1 percent during this period.

3.2.5 Air Cargo

As discussed in Chapter 1, the Airport was ranked 14th worldwide in total air cargo in 2004, with 1.7 million enplaned and deplaned tons.4 Table 3.11 presents historical enplaned and deplaned air cargo at the Airport between 1994 and 2004. As shown, total air cargo at the Airport increased 16.4 percent in 2003 and 5.5 percent in 2004, resulting in the Airport reaching a record high 1.7 million enplaned and deplaned tons of air cargo in 2004. Previously, the Airport experienced 2 years of decreasing numbers of total air cargo in 2000 and 2001 and minimal growth in 2002, during a period that included the terrorist attacks of September 11 and the nationwide economic slowdown. These results followed strong growth in the latter part of the 1990s, with total air cargo increasing from 1.4 million tons in 1994 to 1.6 million tons in 1999.

Table 3.12 presents the shares of total cargo handled by the passenger airlines and the all-cargo carriers at the Airport from 2000 through 2004. As shown, of the all-cargo carriers serving the Airport, FedEx accounted for the largest share of cargo during each of these years. Between 2000 and 2002, FedEx’s share of total cargo increased from 14.5 percent to 19.5 percent. This increase was primarily to the result of FedEx’s systemwide strategy to add capacity and increase service to Europe and Asia based on the growth prospects that these regions presented. As also shown, United accounted for the largest share of total cargo among the passenger airlines serving the Airport each year from 2000 through 2004. In 2000, United’s share of total cargo at the Airport was 19.6 percent. As a result of its shifting certain bellyhold cargo service from mainline jets to regional jets following September 11 and the nationwide economic slowdown, United’s share of total cargo decreased to 12.0 percent in 2003 and remained relatively stable at 12.5 percent in 2004.

3.3 Factors Affecting Aviation Demand

The projections included herein were prepared on the basis of measurable factors (e.g., socioeconomic variables) that determine aviation activity at the Airport. This section discusses qualitative factors that could influence future aviation activity at the Airport.

4 Airports Council International, ACI Traffic Data 2004, July 12, 2005.

City of Chicago



Table 3.10

Historical Landed Weight by Airline 1

(Weight in 1,000 Pound Units)

Airline Landed Weight Share Landed Weight Share Landed Weight Share Landed Weight Share Landed Weight Share

1 United/Ted 225,715,501 41.4% 22,971,006 39.1% 22,260,831 38.4% 20,565,300 36.6% 20,857,869 35.2%

2 American 17,476,273 28.2% 15,627,963 26.6% 15,503,714 26.7% 13,979,145 24.9% 14,631,301 24.7%

3 American Eagle 2,084,923 3.4% 2,317,578 3.9% 2,493,474 4.3% 2,860,010 5.1% 3,733,704 6.3%

4 Air Wisconsin 178,527 0.3% 1,455,630 2.5% 1,308,614 2.3% 1,962,746 3.5% 2,753,789 4.6%

5 FedEx 1,032,693 1.7% 1,156,004 2.0% 1,238,944 2.1% 1,144,175 2.0% 1,134,058 1.9%

6 Northwest 31,272,723 2.1% 1,248,543 2.1% 1,144,055 2.0% 1,096,862 2.0% 1,063,554 1.8%

7 Atlantic Coast(UAX) /

Independence Air 4 555,446 0.9% 937,227 1.6% 1,910,080 3.3% 2,310,990 4.1% 1,030,381 1.7%

8 Delta 51,480,772 2.4% 1,331,385 2.3% 1,085,878 1.9% 778,488 1.4% 824,583 1.4%

9 SkyWest - 0.0% - 0.0% - 0.0% 17,202 0.0% 746,204 1.3%

10 British Airways 414,774 0.7% 390,884 0.7% 397,694 0.7% 590,247 1.1% 715,842 1.2%

11 U.S. Airways 6, 9849,695 1.4% 850,728 1.4% 806,186 1.4% 690,135 1.2% 675,631 1.1%

12 Polar Air Cargo 7 471,906 0.8% 417,231 0.7% 620,901 1.1% 728,910 1.3% 601,542 1.0%

13 Continental 793,420 1.3% 749,845 1.3% 672,513 1.2% 610,888 1.1% 590,713 1.0%

14 Lufthansa 449,495 0.7% 437,135 0.7% 455,622 0.8% 484,185 0.9% 532,488 0.9%

15 Air Canada 8 656,557 1.1% 672,134 1.1% 657,969 1.1% 549,035 1.0% 514,755 0.9%

16 Japan 543,060 0.9% 490,140 0.8% 401,010 0.7% 390,960 0.7% 424,800 0.7%

17 Spirit 34,060 0.1% 267,410 0.5% 366,549 0.6% 393,230 0.7% 414,271 0.7%

18 Mexicana 468,458 0.8% 429,060 0.7% 388,786 0.7% 402,502 0.7% 409,140 0.7%

19 America West 9353,906 0.6% 406,299 0.7% 389,519 0.7% 394,937 0.7% 408,048 0.7%

20 Korean 568,890 0.9% 465,850 0.8% 365,610 0.6% 365,810 0.7% 372,530 0.6%

Other 6,671,508 10.7% 6,192,715 10.5% 5,570,830 9.6% 5,881,041 10.5% 6,835,571 11.5%

TOTAL AIRLINES 1062,072,587 100.0% 58,814,767 100.0% 58,038,779 100.0% 56,196,796 100.0% 59,270,775 100.0%

1 For those airlines that were party to a merger or acquisition during the years shown, only the acquiring entity is presented in this table. However, the activity for the airline(s)

that are now a part of the acquiring airline is included in the information presented.2 United filed for reorganization under Chapter 11 of the Bankruptcy Code on December 9, 2002.3 Northwest filed for reorganization under Chapter 11 of the Bankruptcy Code on September 14, 2005.4 Atlantic Coast discontinued its code-share arrangement with United in August 2004 and currently operates at the Airport as the low-cost carrier Independence Air.

Independence Air filed for reorganization under Chapter 11 of the Bankruptcy Code on November 7, 2005.5 Delta filed for reorganization under Chapter 11 of the Bankruptcy Code on September 14, 2005.6 US Airways filed for reorganization under Chapter 11 of the Bankruptcy Code on August 11, 2002. It emerged from Chapter 11 on March 31, 2003.

US Airways again filed for Chapter 11 bankruptcy court protection on September 12, 2004. It emerged from Chapter 11 on September 16, 2005.7 Atlas Air/Polar Air Cargo filed for reorganization under Chapter 11 of the Bankruptcy Code on January 30, 2004. Atlas Air/Polar Air Cargo emerged from

Chapter 11 on July 27, 2004.8 Air Canada filed for reorganization under Canada's Companies' Creditors Arrangement Act on April 1, 2003. It emerged from bankruptcy court protection on

September 30, 2004.9 On September 27, 2005, US Airways completed its merger with America West.10 Columns may not add to totals shown because of rounding.

Sources: City of Chicago draft audit for 2000, Department of Aviation Management Records for 2001 through 2004


2003 200420022000 2001

City of Chicago



E-64

Table 3.11

Historical Enplaned and Deplaned Cargo

(Weight in Tons)

Domestic Annual International Annual Total Annual

Year Cargo Growth Cargo Growth Cargo Growth

1994 863,509 - 521,104 - 1,384,613 -

1995 819,972 (5.0%) 542,341 4.1% 1,362,313 (1.6%)

1996 824,955 0.6% 564,083 4.0% 1,389,038 2.0%

1997 882,686 7.0% 668,919 18.6% 1,551,605 11.7%

1998 896,873 1.6% 693,209 3.6% 1,590,082 2.5%

1999 882,516 (1.6%) 751,080 8.3% 1,633,596 2.7%

2000 809,460 (8.3%) 782,125 4.1% 1,591,585 (2.6%)

2001 606,814 (25.0%) 758,309 (3.0%) 1,365,123 (14.2%)

2002 590,661 (2.7%) 785,286 3.6% 1,375,947 0.8%

2003 689,331 16.7% 912,405 16.2% 1,601,736 16.4%

2004 629,020 (8.7%) 1,060,284 16.2% 1,689,304 5.5%

Compounded

Annual Growth Rate

1994 - 1999 0.4% 7.6% 3.4%

2002 - 2004 3.2% 16.2% 10.8%



City of Chicago



Table 3.12

Historical Enplaned and Deplaned Cargo by Airline 1

(Weight in Tons)

Cargo Cargo Cargo Cargo Cargo

Airline Volume Share Volume Share Volume Share Volume Share Volume Share

1 FedEx 230,216 14.5% 212,845 15.6% 268,996 19.5% 291,882 18.2% 274,826 16.3%

2 United/Ted 2311,360 19.6% 205,134 15.0% 179,656 13.1% 192,649 12.0% 210,823 12.5%

3 American 183,487 11.5% 143,152 10.5% 110,402 8.0% 106,180 6.6% 138,239 8.2%

4 Korean 34,515 2.2% 42,564 3.1% 55,415 4.0% 56,328 3.5% 69,327 4.1%

5 Polar Air Cargo 3 46,759 2.9% 97,753 7.2% 65,623 4.8% 141,402 8.8% 68,722 4.1%

6 Air France 59,765 3.8% 51,051 3.7% 49,775 3.6% 53,938 3.4% 66,056 3.9%

7 ANA 20,607 1.3% 19,743 1.4% 32,267 2.3% 55,395 3.5% 64,251 3.8%

8 Lufthansa Cargo 54,766 3.4% 54,161 4.0% 57,482 4.2% 57,993 3.6% 63,836 3.8%

9 UPS 89,067 5.6% 84,813 6.2% 74,112 5.4% 65,583 4.1% 63,378 3.8%

10 Cathay Pacific Cargo 22,986 1.4% 21,391 1.6% 27,858 2.0% 37,676 2.4% 48,161 2.9%

11 Singapore Cargo 9,657 0.6% 9,296 0.7% 15,161 1.1% 37,539 2.3% 45,338 2.7%

12 Asiana 12,702 0.8% 16,938 1.2% 18,119 1.3% 31,570 2.0% 43,541 2.6%

13 Japan 38,067 2.4% 32,669 2.4% 38,212 2.8% 34,736 2.2% 40,296 2.4%

14 China 26,630 1.7% 25,638 1.9% 37,235 2.7% 32,969 2.1% 39,301 2.3%

15 Kalitta Air - - - - 4,093 0.3% 26,924 1.7% 39,263 2.3%

Other 451,001 28.3% 347,974 25.5% 341,544 24.8% 378,973 23.7% 413,947 24.5%

AIRPORT TOTAL 4 1,591,585 100.0% 1,365,123 100.0% 1,375,947 100.0% 1,601,736 100.0% 1,689,304 100.0%

1 For those airlines that were party to a merger or acquisition during the years shown, only the acquiring entity is presented in this table. However, the activity for the

airline(s) that are now a part of the acquiring airline is included in the information presented.2 United filed for reorganization under Chapter 11 of the Bankruptcy Code on December 9, 2002.3 Atlas Air/Polar Air Cargo filed for reorganization under Chapter 11 of the Bankruptcy Code on January 30, 2004. Atlas Air/Polar Air Cargo emerged from

Chapter 11 on July 27, 2004.4 Columns may not add to totals shown because of rounding.



20042002 20032000 2001

City of Chicago



E-66

3.3.1 National Economy

Air travel demand is directly correlated to income. As consumer income and business profits increase, so does air travel. Economic indicators in the nation prior to September 11 were beginning to show signs of a recession. On November 2001, the National Bureau of Economic Research officially announced that in March 2001 the U.S. economy had entered its 10th recession since the end of World War II. The loss of household wealth dampened consumer confidence and significantly reduced consumer spending. According to the Bush Administration’s Council of Economic Advisers (Council), business investment slowed sharply in late 2000 and remained soft for more than 2 years. Also according to the Council, the U.S. economy lost over 900,000 jobs from December 2000 to September 2001, and then lost almost another 900,000 jobs in the three months following September 11.5 The effects of September 11 accelerated the downturn in consumer spending on consumer goods and services, including spending on air travel.

According to the Council, economic conditions improved substantially in 2003 due to faster growth in household consumption, significant gains in residential investment, and strong growth in investment in equipment and software by businesses. Payroll employment bottomed out in July 2003 and began to show net gains in the latter part of the year.6 Also according to the Council, the recovery of the national economy became a full-fledged expansion in 2004, with strong output growth and steady improvement in the labor market. In 2004, the economy (real gross domestic product) expanded 4.4 percent for the year as a whole compared to 2003 levels; and payroll employment increased by 2.2 million jobs (the largest annual gain since 1999). Such continued growth indicated to the Council that the economy has shifted from a policy-supported recovery to a self-sustaining healthy expansion.7 The expected strong growth in the economy, considered recovered from the effects of September 11 and the economic slowdown, is a factor included in the assumptions underlying the projections included herein.

3.3.2 State of the Airline Industry

Overall

The U.S. aviation industry has been significantly affected by a number of events that occurred earlier this decade (e.g., September 11, the economic slowdown, the outbreak of SARS in Asia and Canada, and the Middle East conflicts). These events contributed to substantial financial losses for the aviation industry between 2001 and 2005 year-to-date. At this time, escalating fuel prices and lowered fares continue to prevent legacy carriers from being profitable on an annual basis.

Since the events of September 11 and the nationwide economic slowdown, several U.S. airlines and Air Canada filed for bankruptcy court protection:

US Airways filed for bankruptcy protection under Chapter 11 on August 11, 2002. US Airways and seven subsidiaries subsequently emerged from Chapter 11 on March 31, 2003. US Airways again filed for Chapter 11 bankruptcy protection on September 12, 2004. On May 19, 2005, US Airways and America West announced a merger agreement, which was subject to approval by the U.S. Bankruptcy Court overseeing US Airways’ pending Chapter 11 case and transaction closing. On September 16, 2005, US Airways received final approval from the U.S. Bankruptcy Court to exit bankruptcy protection and merge with America West. On September 27, 2005, US Airways completed its merger with America West.

United Airlines filed for bankruptcy protection under Chapter 11 on December 9, 2002. A detailed account of certain chronological events following United’s bankruptcy filing and its financial condition is provided later in this section (see “United Airlines”).

5 Economic Report of the President, February 2005. 6 Economic Report of the President, February 2004. 7 Economic Report of the President, February 2005.

City of Chicago



Hawaiian Airlines filed for bankruptcy protection under Chapter 11 on March 21, 2003. Hawaiian emerged from Chapter 11 on June 1, 2005.

Air Canada filed for reorganization under Canada’s Companies’ Creditors Arrangement Act on April 1, 2003. Air Canada emerged from bankruptcy protection on September 30, 2004.

Midway Airlines was placed into Chapter 7 liquidation by a U.S. bankruptcy court judge on November 30, 2003.

Atlas Air/Polar Air Cargo filed for bankruptcy protection under Chapter 11 on January 30, 2004. Atlas Air/Polar Air Cargo emerged from Chapter 11 on July 27, 2004.

ATA filed for bankruptcy protection under Chapter 11 on October 26, 2004. On December 21, 2004, the U.S. Bankruptcy Court granted approval for Southwest to acquire lease rights to six gates and a maintenance hangar at Midway for $40 million, to provide $47 million in financing, and to make an investment of $30 million in ATA once it emerges from Chapter 11. The agreement created the first significant code-share arrangement for both airlines, which became effective on February 4, 2005. On September 30, 2005, ATA filed its Plan of Reorganization, which contemplates a sale of ATA securities to Matlin Paterson and a related transfer of the following: (1) lease rights to four gates at Midway to Southwest; (2) return of three gates at Midway to the City; and (3) the retention by ATA of one gate at Midway. The Plan of Reorganization also anticipates ATA’s emergence from bankruptcy on January 23, 2006.

Aloha Airlines filed for bankruptcy protection under Chapter 11 on December 30, 2004.

Delta Air Lines filed for bankruptcy protection under Chapter 11 on September 14, 2005.

Northwest Airlines filed for bankruptcy protection under Chapter 11 on September 14, 2005.

Mesaba Airlines filed for bankruptcy protection under Chapter 11 on October 13, 2005.

Independence Air filed for bankruptcy protection under Chapter 11 on November 7, 2005.

According to the FAA, aviation activity nationwide was already in a weakened state even before the events of September 11 and headed toward one of its worst years in over a decade. Also according to the FAA, passenger demand began to decline in February 2001 and air carrier finances turned negative in the first quarter of CY 2001, primarily due to declining high-yield business traffic and rapidly escalating labor costs. In response to weak demand following September 11, airlines were forced to reduce fares to stimulate demand, creating a further reduction in airline revenues. According to the Air Transport Association, the financial condition of the U.S. airline industry remains poor and has a long way to go before it can be declared healthy. This organization estimates that in 2005 the industry will add over $6 billion to the $32.3 billion in losses incurred between 2001 and 2004. The airlines have responded to the changing nature of the industry by furloughing employees (according to the US DOT, the number of part-time and full-time employees at U.S. certificated carriers decreased 110,000 from approximately 730,000 in 2000 to approximately 620,000 in 2004.), negotiating significant wage reductions, deferring aircraft deliveries, streamlining operations, and improving productivity. However, high fuel prices coupled with intense fare competition, as well as massive debt and large unfunded pension obligations, will make the industry’s financial recovery difficult in the short term.

The way airlines do business has dramatically changed over the last 4 years. Faced with the growth of low-cost airlines and evolving business technology, legacy airlines have been forced to change business practices. Carriers that once structured their services around the business traveler during the economic boom in the 1990s found that more and more businesses were either switching to low-cost carriers or significantly reducing or eliminating business travel. Legacy carriers were therefore forced to reduce, eliminate, or switch service to smaller regional jets on unprofitable routes, reduce work force and implement pay cuts, and reduce fares in order to compete with low-cost carriers.

City of Chicago



A major tangible change in the airline industry has been the significantly increased use of smaller, regional jets. According to the US DOT, scheduled flights nationwide on regional jets increased from 91,960 monthly departures in July 2000 to 294,698 in July 2005, a compounded annual growth rate of 26.2 percent during this period. Also according to the US DOT, scheduled regional jet traffic will account for 32 percent of scheduled domestic flights in July 2005, compared to 10 percent in July 2000.8 As the U.S. airline industry continues to recover from the effects of September 11 and other factors cited earlier, other trends that have emerged include (1) more widespread use of simplified fare structures, (2) the growth of competition by low-cost carriers in long haul markets, (3) increased efficiency and productivity, and (4) declining real fares.

Most industries have one or more of three inherent structural weaknesses: labor intensive, capital intensive, and/or vulnerability to cost and supply of a key commodity (e.g., aviation fuel). Airlines have all three weaknesses. As discussed above, four of the six U.S. legacy carriers are undergoing reorganization under Chapter 11 since the events of September 11. Chapter 11 protection enables these carriers the ability to pursue cuts in wages, as well as pension and health benefits for workers and retirees. American and Continental are the two U.S. legacy carriers that have not filed for bankruptcy protection since the events of September 11, which may or may not become an issue during the projection period.

United Airlines

Based on enplanements, United Airlines is the largest airline operator at the Airport with 38.0 percent of total enplaned passengers at the Airport in 2004. Including its regional/commuter partners, United’s share of total enplaned passengers at the Airport was 48.5 percent in 2004. On December 9, 2002, shortly after the Air Transportation Stabilization Board (ATSB) rejected its application for a $1.6 billion loan guaranty, UAL Corporation, along with certain of its subsidiaries, including United Airlines, filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. The Chapter 11 filing allows UAL and certain subsidiaries to continue operations while developing a plan of reorganization to address existing debt, capital and cost structures. In connection with this bankruptcy filing, the bankruptcy court approved $1.5 billion in debtor-in-possession financing. In April 2003, UAL secured bankruptcy court approval for $2.56 billion in labor concessions over the next 6 years. On July 23, 2004, UAL negotiated an agreement to amend its DIP-financing credit facilities, which provided UAL with an additional $500 million in available funds.

UAL reported losses of $8.2 billion between 2001 and 2004, as well as a $250 million loss for the quarter ended March 2005, compared to a $211 million loss for the first quarter ended March 2004. Excluding special and reorganization costs, UAL reported a net loss of $26 million for the second quarter ended June 2005 and a net gain of $68 million for the third quarter ended September 2005. Since December 2002, UAL has taken steps toward restructuring its operations. Currently, UAL is reducing its domestic capacity by 12 percent, while increasing international capacity by 14 percent, for an overall systemwide capacity reduction of 3 percent. UAL is in the process of reducing its fleet to 455 aircraft, which is 68 fewer than it flew in August 2004, and 112 fewer (or nearly 20 percent of its fleet) since 2002. In 2005, UAL ratified labor agreements with four of its six unions. Also in 2005, UAL received court approval of a settlement agreement with the Pension Benefit Guarantee Corporation regarding the termination of all further financial responsibility of United’s defined benefit pension plans.

On September 7, 2005, UAL filed a Plan of Reorganization and Disclosure Statement with the U.S. Bankruptcy Court for the Northern District of Illinois. UAL plans to exit from bankruptcy protection by February 1, 2006.

American Airlines

Based on enplanements, American Airlines is the second-largest airline operator at the Airport with 28.4 percent of mainline enplaned passengers at the Airport in 2004. Including its regional/commuter partner American Eagle, American’s share of total enplaned passengers at the Airport was 36.4 percent in 2004.

8 Aviation Industry Performance memorandum from the Inspector General of the US DOT, June 30, 2005.

City of Chicago



AMR Corporation, the parent company of American Airlines, reported a $761 million loss for 2004, compared to a $1.2 billion loss for 2003; and a net profit of $58 million for the quarter ended June 2005, compared to a net profit of $6 million (which included a $31 million benefit from special items) for the quarter ended June 2004. The second quarter net profit was AMR’s first profitable quarter, without the benefit of special items, since the fourth quarter of 2000. Due to record high fuel prices driven by Hurricanes Katrina and Rita, as well as competition from both low-cost carriers and airlines restructuring in bankruptcy, AMR reported a net loss of $153 million in the quarter ended September 2005, compared to a net loss of $214 million for the quarter ended September 2004.

AMR has also taken steps toward restructuring its operations, including de-peaking its activity at the Airport and at Dallas/Fort Worth International Airport, downsizing its hub at Lambert-St. Louis International Airport, simplifying its aircraft fleet, and automating customer ticketing and check-in functions. In April 2003, AMR’s labor unions approved $1.8 billion in annual concessions as part of an overall $4.0 billion annual cost reduction plan.

3.3.3 Factors Directly Affecting the Airline Industry

Cost of Aviation Fuel

According to the Air Transport Association, the high price of fuel is preventing the U.S. airline industry from being profitable. As industry fundamentals go, the price of fuel is the most significant force affecting the industry today.9 With the price of fuel today, compared to the price of fuel in 2000, the airlines are struggling to make a profit. The average price of jet fuel was $0.81 per gallon in 2000 compared to $1.15 in 2004. Based on approximately the same amount of consumption, the airlines paid $5.0 billion dollars more in 2004 then they did in 2000. According to the Air Transport Association, every one-cent increase in the price per gallon increases annual airline operating expenses approximately $190 million.

Also according to the Air Transport Association, the airline industry will pay approximately $9 billion more for fuel in 2005 than in 2004.10 The price of jet fuel has forced some airlines to find ways of becoming more fuel efficient, and some airlines have found ways to save millions of dollars by taking many steps including using newer, more fuel-efficient airplanes, using only a single engine for taxi, lowering cruise spends, onboard weight reduction, more direct routes, and other measures. In the initial years following the events of September 11 and the nationwide economic slowdown, some U.S. airlines attempted to pass the higher fuel costs on to consumers by increasing the fuel surcharge; however, some of these attempts were unsuccessful as many airlines, particularly low-cost carriers, refused to match the increase in a number of instances. With the significant increases in fuel prices in recent months, airlines are more consistently matching fuel surcharges by other airlines.

Industrywide, airlines still spend more on labor than fuel; however, the gap is narrowing as the price of jet fuel has increased to more than $2.00 per gallon in recent months and airlines have aggressively cut or restrained labor costs. According to Air Transport Association, labor accounted for 31 percent of industry expenditures while fuel accounted for 17 percent in 2004. In 2003, these percentages were 36 percent and 13 percent, respectively. AirTran, America West, JetBlue, and US Airways reported paying more for fuel than for labor during the second quarter of 2005.

Airlines have hedged fuel prices through the purchase of oil futures contracts; however, the amount of hedged fuel cost has varied tremendously by airline and is limited by an individual airline’s financial condition. The substantial increase in fuel prices has had a significant impact on profitability and future increases or sustained higher prices could affect airfares and airline service.

9 Statement for the Record before the Committee on Commerce, Science & Transportation Subcommittee on Aviation, United

States Senate, Hearing on Airline Financial Stability, Air Transport Association, July 13, 2005. 10 Estimated by the Air Transport Association in November 2005.

City of Chicago



Airport Security

With enactment of the Aviation and Transportation Security Act (ATSA) in November 2001, the Transportation Security Administration (TSA) was created, which established different and improved security processes and procedures. The ATSA mandates certain individual, cargo and baggage screening requirements, security awareness programs for airport personnel and deployment of explosive detection devices. The act also permits the deployment of air marshals on all flights and requires air marshals on all "high-risk" flights. To finance these federal security services, the ATSA provides for payment by the airlines of approximately $700 million, estimated to be the cost of providing such services prior to the September 11 Events, and imposes a passenger fee of $2.50 for each flight segment, not to exceed $5.00 per one-way trip.

In November 2002, Congress enacted the Homeland Security Act, which created the Department of Homeland Security (DHS) to accomplish several primary goals: (1) prevent terrorist attacks within the United States, (2) reduce the nation’s vulnerability to terrorism, (3) minimize the damage of and assist in the recovery from terrorist attacks that do occur, (4) and monitor connections between illegal drug trafficking and terrorism and coordinate efforts to sever such connections. The TSA is now a part of the DHS.

The Homeland Security Act extended the federal government’s guarantee of war-risk insurance to airlines through at least August 31, 2006 and, at DHS's option, through December 31, 2006. The Homeland Security Act caps the total premium paid by any airline for war-risk insurance at no more than twice the premium the airline was paying the US DOT for its third-party policy as of June 19, 2002. The Homeland Security Act also requires that carriers include methods of self-defense within their security training programs for flight attendants. The Act also requires DHS to establish a program for arming pilots, though participation in the program remains voluntary.

Threat of Terrorism

As has been the case since September 11, the recurrence of terrorism incidents against either domestic or world aviation during the projection period remains a risk to achieving the activity projections contained herein. Tighter security measures have restored the public’s confidence in the integrity of U.S. and world aviation security systems. Any aviation-related terrorist incident would have an immediate and significant impact on the demand for aviation services.

Impact of the Airline Industry on O’Hare

Continued increases to the cost of aviation fuel and/or an aviation-related terrorist incident during the projection period would negatively impact activity at the Airport. Higher fuel prices may delay or seriously hinder United’s plan for emerging from bankruptcy court protection; and may hasten the need for other carriers serving the Airport to seek bankruptcy court protection (e.g., Delta and Northwest filing for bankruptcy court protection on September 14, 2005; Mesaba filing for bankruptcy court protection on October 13, 2005; and Independence Air filing for bankruptcy protection on November 7, 2005). An aviation-related terrorist incident would further erode the health of the aviation industry and require the airlines to refine their business plans further to remain viable, which certain airlines may not be able to implement to survive. The strong and diverse economic base of the Chicago Region, however, as well as the absolute size of its population base, would insulate the Airport from a portion of the impact of one or both of these factors occurring during the projection period. In addition, the existence of hubbing operations at the Airport would provide a viable source of additional passengers that more O&D–oriented airports would not be able to access. As presented earlier in Table 1.3, there is a balanced mix of originating and connecting passengers at the Airport, both on a percentage basis and in absolute size, providing demand for air travel at the Airport. The large number of airlines serving the Airport would mitigate the impact of losing service from those airlines not surviving another challenge to the aviation business model.

City of Chicago



3.3.4 Factors Affecting O’Hare

Capacity of the National Airspace System

Among the FAA’s major concerns is the impact that increased delays at busy airports have on the efficiency of the national airspace system. While considerable emphasis has been placed on improving system capacity without adding new pavement (e.g., through refinements in air traffic control procedures and improvements in navigational aids technology), the FAA acknowledges the significant role of building new runways, particularly at major connecting hubs. In its 2001-2005 NPIAS report, the FAA stated that the largest increases in capacity at the worst delayed airports could be achieved through new runway construction. The report also notes that the ability of connecting hub airports to accommodate future growth and retain hub carriers is predicated on the provision of additional runway capacity. The 2002 Aviation Capacity Enhancement Plan, which outlines the FAA’s initiatives to improve the national airspace system performance, states that the construction of new runways and the extension of existing runways are the most significant and direct ways to improve capacity at existing airports.

The national airspace system consists of individual airports that form interconnected and interdependent components of a network. A delay at one airport can propagate throughout the system, disrupting traffic well beyond the original location of the delay. Of particular importance are large hub airports (e.g., O’Hare), which are critical elements of the network and must be able to process significant numbers of operations to maintain system efficiency. Air traffic at one airport must be seen in a systemwide context, in which delays can significantly affect operations at other airports.

The physical and operational characteristics at the Airport contribute to high levels of congestion and delay that are expected to become more severe in the future if no action is taken to increase capacity. Severe capacity constraints at the Airport affect the efficiency of the national airspace system. In the past three years, the percentage of delayed flight arrivals at the Airport increased from 19 percent in 2002 to 27.9 percent in 2004; and the percentage of delayed flight departures increased from 18.3 percent in 2002 to 28.2 percent in 2004. The Airport was ranked as the most delayed airport in the United States in terms of number of delays (flights delayed 15 minutes or more) and in terms of total delay for 2004. Recently, the Airport was ranked as the second-most delayed airport in the United States in terms of number of delays and the most delayed airport in terms of total delay minutes for the first six months of 2005. Aviation delays and congestion have been a significant problem at the Airport for more than 30 years.

Since that time, recurring delays and congestion have caused the FAA to intervene with an array of administrative actions to mitigate Airport congestion and prevent disruptions from flowing throughout the national airspace system. The FAA intervened three times in 2004 to get the airlines to reduce flight schedules at the Airport. It is the belief of the City that administrative responses are not a desirable long-term solution to capacity constraints at the Airport.

FAA Caps on Operations at O’Hare

Effective November 1, 2004, the FAA and the domestic airlines serving the Airport agreed to voluntarily limit scheduled Airport arrivals to 88 per hour between 7:00 a.m. and 7:59 p.m. (and to 50 in any half hour) and to 98 scheduled arrivals between 8:00 p.m. and 8:59 p.m. United, American, and their regional/commuter partners, who accounted for 84.9 percent of total enplaned passengers at the Airport in 2004, agreed to the largest reductions. United agreed to reduce its service by 20 arrivals per hour and American agreed to reduce its service by 17 arrivals per hour between 7:00 a.m. and 8:00 p.m. United and United Express combined still operate 588 daily arrivals and American and American Eagle still operate 492 daily arrivals during this time period. The voluntary agreement was intended to reduce delays at the Airport by 20 percent. Preliminary results following this voluntary agreement confirm this expectation. U.S. Transportation Secretary Mineta reported on March 22, 2005, that since November 2004, O’Hare’s on-time arrival performance has improved by 17 percent and overall delay minutes have been cut by 22 percent compared to last year. This agreement, originally set to expire on April 30, 2005, has been extended to April 1, 2006.

City of Chicago



On March 25, 2005, the FAA issued a notice of proposed rulemaking (NPRM) in the Federal Register to implement a more formal flight reduction rule until April 6, 2008. Other major alternatives the FAA considered to manage congestion and delays at the Airport included (1) letting the voluntary agreement expire and return to the free and open market with no flight caps, (2) extending the voluntary agreement, and (3) using market-based mechanisms such as an auction or congestion pricing. The public comment period on the NPRM closed on May 24, 2005; with 11 respondents, including the City, providing written comments on the NPRM. In its comments, the City stated that the proposal is an unnecessary and harmful attempt to re-impose slot controls at the Airport with uncertain consequences and regulatory authority. The City believes far less intrusive measures exist to accomplish the intended goal of delay reduction; namely, acceleration of the OMP, sunset of the existing FAA Order, and return to a free market system of flight management. A decision on this issue by the FAA is forthcoming. As discussed later, it is assumed for projection purposes in this report that the operating limitations will be in place at the Airport through a portion of 2008 to coincide with the opening of Future Runway 9L-27R.

Other Area Airports

The Airport is part of the Chicago Airport System that includes O’Hare and Midway. The City owns both O’Hare and Midway; and the City’s Department of Aviation operates them as separate enterprises for financial purposes. Revenues (as defined in the Bond Ordinance) resulting from the operation of O’Hare are not available to satisfy the obligations of Midway, and vice versa. Demand for air service in the Chicago Region is predominantly served through the Airport, particularly for international air traffic (which is growing in absolute terms and in its share of total enplanements at the Airport) and nonstop travel to the area’s top 50 O&D markets. As discussed in Chapter 1, however, the Airport’s scheduling frequency to the Chicago Region’s top business O&D markets serves the local business traveler’s needs; and the Airport’s fares to the Chicago Region’s top leisure O&D markets are competitive with those offered at Midway.

Gary/Chicago International Airport, which is owned by the City of Gary, Indiana and operated by the Gary/Chicago International Airport Authority, is also located in the Chicago Region (see Exhibit 2.1 in Chapter 2); however, this airport provides limited scheduled commercial passenger service.

The nearest medium- to large-hub commercial service airport outside the Chicago Region is General Mitchell International Airport, located approximately 70 miles north of the Airport in Milwaukee, Wisconsin. This airport serves the commercial air service needs of Milwaukee, southeast Wisconsin, and portions of northern Illinois. Although General Mitchell International Airport is in close proximity to the Airport (their overlapping service areas include three counties in the northern Chicago Region area, which represent 12 percent of the population in the Chicago Region), the higher frequencies of nonstop service to top O&D markets from the Airport diverts a portion of traffic in northern Illinois and southern Wisconsin to the Airport. As discussed earlier, fare differentials are not significant enough to divert traffic from these overlapping service areas to General Mitchell International Airport, as the average one-way fare for domestic travel in 2004 was approximately $138 for the Airport and approximately $132 for General Mitchell International Airport.11

There have been alternative proposals to solving capacity constraints at the Airport and relieving congestion at both O’Hare and Midway. Plans to build a third airport have been on the drawing board since the 1980s. Since 1991, the most likely site for a third airport has been near Peotone, Illinois, approximately 35 miles from downtown Chicago. The FAA approved the Draft Environmental Impact Statement for Site Approval and Land Acquisition in July 2002. The FAA’s Record of Decision found the Peotone site technically and environmentally feasible for a new airport referred to as South Suburban Airport.

11 Calculations of average fares include frequent flyer passengers.

City of Chicago



The FAA issued the O’Hare Modernization Final Environmental Impact Statement (FEIS) in July 2005.12 In this study, a scenario was developed for the potential use of other regional airports that would be reasonable in relation to (1) data on airport shares in multiple airport systems, (2) the availability of capacity at airports in the surrounding area, and (3) the likelihood of airlines initiating service at available airports. Based on these analyses, the FEIS concluded that a reasonable scenario would be one in which approximately 2.0 million originating passengers that would otherwise use O’Hare would be accommodated at one or more of the secondary airports, including a potential South Suburban Airport. The FEIS further concluded that this level of passenger traffic translated into an insignificant reduction in total aircraft operations at the Airport.

3.4 Projected Airport Activity

Passenger demand was projected on the basis of local socioeconomic and demographic factors, as discussed earlier, and the Airport’s historical shares of U.S. enplaned passengers. The following two methodologies were applied:

Market Share Approach. In this methodology, informed judgments are made as to how and to what extent the Airport’s rate of growth will differ from that projected for the nation by the FAA. On a macro scale, the FAA projection provides a growth base reflecting how industry traffic in general is anticipated to grow in the future. The growth rate used for the Airport can be viewed as an increase or decrease in its future share of the national market. For projecting domestic major/national airline activity, this approach was used individually for United and American, and collectively for the remaining domestic major/national airlines. The same methodology was used for regional/commuter airline activity: individually for United Express carriers and American Eagle, and collectively for the remaining regional/commuter airlines.

Socioeconomic Regression Approach. Statistical linear regression analysis is used in this methodology, with local socioeconomic factors as the independent variable and enplaned passengers as the dependent variable. Socioeconomic factors used in these analyses included population, income, per capita income, and nonagricultural employment. Of interest in these analyses, among other factors, was how well each socioeconomic variable explained the annual variations in numbers of enplaned passengers at the Airport (i.e., the model’s correlation coefficient).

The enplaned passenger projections included herein are based on a number of underlying assumptions, including:

Passenger activity at the Airport has recovered from the effects of September 11 and the nationwide economic slowdown. The broad expansion in U.S. economic activity during the latter half of 2003 and most of 2004 is expected to continue into 2005 and 2006. Over the entire projection period, U.S. economic growth is expected to increase at a compounded annual growth rate of 3.2 percent.13

Domestic mainline carriers will continue to shift certain traffic to their respective regional/commuter partners during the projection period through 2014, resulting in a higher growth rate for the regional/commuter airlines compared to the majors/nationals.

United, which will emerge from bankruptcy court protection, and American will continue to operate major connecting hubbing facilities at the Airport. The connecting passenger percentages for domestic and international passengers will remain constant at their 2004 levels each year during the projection period (approximately 55 percent in total).

A broad base of airlines will continue to serve the Airport with United and American continuing to dominate market share.

12 O’Hare Modernization Final Environmental Impact Statement, July 2005, FAA. 13 US DOT, FAA Aerospace Forecasts, Fiscal Years 2005 – 2016.

City of Chicago



The Airport will continue to be highly ranked in terms of operations, passengers, and cargo tonnage during the projection period. Demand for air service in the Chicago Region will continue to be predominantly served through the Airport, particularly for international air traffic and nonstop travel to the area’s top 50 O&D markets. Planning efforts are underway for a third commercial service airport located approximately 37 miles south of the City’s central business district (South Suburban Airport ).14 Although difficult to determine South Suburban Airport’s impact on the Chicago Airport System, or even its opening date, it is not expected that this third airport within the Chicago Region would attract significant demand away from the Airport during the projection period.

Although the FAA’s operating limitations are currently only in place at the Airport through April 1, 2006, it is assumed for projection purposes that the operating limitations will be in place at the Airport through April 2008 to generally coincide with the opening of Future Runway 9L-27R.

Airline consolidations/mergers or bankruptcies that may occur during the projection period will not negatively affect numbers of enplaned passengers at the Airport. New airline alliances, should they develop, will be restricted to code sharing and joint frequent flyer programs, and will not reduce airline competition at the Airport.

For these analyses, and similar to the FAA's nationwide projections, it is assumed that there will not be terrorist incidents against either domestic or world aviation during the projection period. Additionally, it was assumed that the aviation industry will not undergo a major contraction through bankruptcy, consolidation, or liquidation during this same period. Although strategies and success levels can be expected to differ among air carrier groupings, the aviation industry in aggregate will not be materially altered during the projection period.

Many of the factors influencing aviation demand cannot necessarily or readily be quantified; and any projection is subject to uncertainties. As a result, the projection process should not be viewed as precise. Actual future numbers of enplaned passengers, aircraft operations, or landed weight at the Airport may differ from the projections presented herein because events and circumstances do not occur as expected, and those differences may be material.

3.4.1 Enplaned Passenger Projections

Table 3.13 presents historical and projected numbers of enplaned passengers at the Airport. Based on 10 months of historical data, the number of domestic enplaned passengers is projected to remain relatively stable at 32.2 million between 2004 and 2005. During the remainder of the projection period, the number of domestic enplaned passengers is projected to increase from 32.2 million in 2005 to 35.7 million in 2014. This increase represents a compounded annual growth rate of 1.1 percent during this period (compared to 3.4 percent projected nationwide by the FAA in its aerospace forecasts dated March 2005), and is generally consistent with long-term growth in numbers of domestic enplaned passengers at the Airport between 1990 and 2000. Also based on 10 months of historical data, the number of international enplaned passengers is projected to increase from 5.3 million in 2004 to 5.6 million in 2005, an increase of 5.5 percent. During the remainder of the projection period, the number of international enplaned passengers is projected to increase from 5.6 million in 2005 to 7.7 million in 2014. This increase represents a compounded annual growth rate of 3.7 percent during this period, consistent with long-term historical growth in international passenger activity at the Airport when correlated with local socioeconomic factors. The total number of enplaned passengers at the Airport is projected to increase from 37.4 million in 2004 to 43.4 million in 2014, which represents a compounded annual growth rate of 1.6 percent during the projection period.

3.4.2 Aircraft Operations Projections

Table 3.14 presents historical and projected aircraft operations for the passenger airlines, general aviation, the all-cargo carriers, and the military. As shown, total aircraft operations at the Airport are projected to decrease

14 The FAA’s Record of Decision, dated July 15, 2002, found the site for a third airport (located near Peotone, Illinois) to be

technically and environmentally feasible.

City of Chicago



Table 3.13

Enplanement Projections

Domestic International

Regionals/ Airport

Year Majors/Nationals Commuters Total U.S. Flag Carriers Foreign Flag Carriers Total Total

Historical

1999 28,290,412 2,900,303 31,190,715 2,425,782 2,331,219 4,757,001 35,947,716

2000 27,606,534 3,045,218 30,651,752 2,453,306 2,595,891 5,049,197 35,700,949

2001 25,200,348 3,493,518 28,693,866 2,244,382 2,371,981 4,616,363 33,310,229

2002 24,253,543 4,306,814 28,560,357 2,293,523 2,065,056 4,358,579 32,918,936

2003 24,033,143 5,856,226 29,889,369 2,374,232 2,169,931 4,544,163 34,433,532

2004 25,147,568 7,024,490 32,172,058 2,911,281 2,361,209 5,272,490 37,444,548

Projected1

2005 24,029,600 8,174,500 32,204,100 3,368,900 2,191,600 5,560,500 37,764,600

2006 24,292,800 8,512,800 32,805,600 3,510,000 2,305,900 5,815,900 38,621,500

2007 24,607,200 8,797,500 33,404,700 3,646,400 2,420,400 6,066,800 39,471,500

2008 24,794,700 8,951,700 33,746,400 3,782,600 2,534,500 6,317,100 40,063,500

2009 25,000,900 9,099,100 34,100,000 3,915,000 2,647,700 6,562,700 40,662,700

2010 25,223,300 9,234,000 34,457,300 4,043,600 2,759,300 6,802,900 41,260,200

2011 25,408,800 9,355,900 34,764,700 4,168,300 2,868,700 7,037,000 41,801,700

2012 25,586,800 9,474,000 35,060,800 4,293,700 2,975,300 7,269,000 42,329,800

2013 25,784,200 9,573,400 35,357,600 4,424,200 3,078,400 7,502,600 42,860,200

2014 25,990,000 9,667,500 35,657,500 4,554,900 3,177,400 7,732,300 43,389,800

Compounded

Annual Growth Rate

1999 - 2000 (2.4%) 5.0% (1.7%) 1.1% 11.4% 6.1% (0.7%)

2000 - 2001 (8.7%) 14.7% (6.4%) (8.5%) (8.6%) (8.6%) (6.7%)

2001 - 2004 (0.1%) 26.2% 3.9% 9.1% (0.2%) 4.5% 4.0%

2004 - 2005 (4.4%) 16.4% 0.1% 15.7% (7.2%) 5.5% 0.9%

2005 - 2014 0.9% 1.9% 1.1% 3.4% 4.2% 3.7% 1.6%

1 Projections for 2005 were based on nine months of historical data.

Sources: City of Chicago, Department of Aviation Management Records (historical)

Ricondo & Associates, Inc. (forecast)


City of Chicago



E-76

Table 3.14

Aircraft Operations Projections


Majors/ Regionals/ U.S. Foreign Total General All-Cargo Airport

Year Nationals Commuters Flag Carriers Flag Carriers Passenger Airlines Aviation Carriers Military Total

Historical

1999 575,837 177,854 39,015 39,172 831,878 39,596 23,984 770 896,228

2000 561,862 201,772 39,982 45,182 848,798 35,565 24,626 0 908,989

2001 541,782 230,292 40,320 41,564 853,958 36,854 21,105 0 911,917

2002 539,269 262,345 36,412 33,691 871,717 30,216 20,790 94 922,817

2003 489,822 312,910 40,733 35,722 879,187 28,247 21,257 0 928,691

2004 492,469 367,227 46,698 35,696 942,090 28,749 21,588 0 992,427

Projected1

2005 433,600 409,200 49,860 33,500 926,160 28,800 21,800 0 976,760

2006 438,000 413,400 50,360 33,840 935,600 28,900 22,300 0 986,800

2007 442,400 417,600 50,860 34,180 945,040 29,100 23,000 0 997,140

2008 467,800 407,800 54,600 35,400 965,600 29,400 23,500 0 1,018,500

2009 471,600 417,200 56,200 36,600 981,600 29,800 24,200 0 1,035,600

2010 475,800 426,000 57,800 37,800 997,400 30,200 24,700 0 1,052,300

2011 479,200 435,000 59,400 39,000 1,012,600 30,500 25,200 0 1,068,300

2012 482,600 444,600 60,800 40,000 1,028,000 30,900 25,900 0 1,084,800

2013 486,200 453,400 62,400 41,000 1,043,000 31,300 26,600 0 1,100,900

2014 490,200 462,800 64,000 42,000 1,059,000 31,500 27,100 0 1,117,600

Compounded

Annual Growth Rate

1999 - 2000 (2.4%) 13.4% 2.5% 15.3% 2.0% (10.2%) 2.7% N/A 1.4%

2000 - 2001 (3.6%) 14.1% 0.8% (8.0%) 0.6% 3.6% (14.3%) N/A 0.3%

2001 - 2004 (3.1%) 16.8% 5.0% (4.9%) 3.3% (7.9%) 0.8% N/A 2.9%

2004 - 2005 (12.0%) 11.4% 6.8% (6.2%) (1.7%) 0.2% 1.0% N/A (1.6%)

2005 - 2014 1.4% 1.4% 2.8% 2.5% 1.5% 1.0% 2.4% N/A 1.5%

N/A = not applicable





City of Chicago



E-77

from 992,427 in 2004 to 976,760 in 2005 (primarily due to the FAA’s operating limitations at the Airport) and then increase to 1,117,600 in 2014. This increase represents a compounded annual growth rate of 1.5 percent during this period. As a result of the FAA’s operating limitations in place at the Airport through April 1, 2006 (and expected to be extended to April 6, 2008), and based on 10 months of historical data, total operations are projected to decrease in 2005 compared with 2004 numbers and remain constrained until the opening of Future Runway 9L-27R in 2008. These operations limitations result in higher-than-normal yet manageable levels of passenger load factors (i.e., the percentage of passengers departing to total seats on an aircraft) during this period. With the opening of the new runway and termination of the operating limitations, operations at the Airport are projected to increase at higher rates between 2008 and 2014 than in the prior years.

Passenger airline operations at the Airport are projected to increase from 942,090 in 2004 to 1,059,000 in 2014. A shifting of domestic activity in certain markets from mainline service to regional/commuter service will continue during the projection period, especially in 2005 (based on 10 months of historical data), resulting in higher growth in regional/commuter activity between 2004 and 2014. In general, the passenger airline aircraft operations projections were based on historical relationships among enplaned passengers, load factors, average seating capacities of aircraft serving the Airport, including the anticipated shifting from smaller 50-seat regional jets to larger 70-seat regional jets, and the operating limitations at the Airport.

General aviation operations at the Airport are expected to increase moderately during the projection period, reflecting the assumption that growth in this sector will occur primarily at outlying airports within the Chicago Region as the result of cost and delay considerations. General aviation operations at the Airport are projected to increase from 28,749 in 2004 to 31,500 in 2014. This increase represents a compounded annual growth rate of 0.9 percent during this period, compared to 1.1 percent projected by the FAA for the nation.

All-cargo aircraft operations at the Airport are projected to increase at rates generally in line with growth in air carrier aircraft operations projected for the nation by the FAA during the projection period. All-cargo aircraft operations at the Airport are projected to increase from 21,588 in 2004 to 27,100 in 2014.

Future military activity at the Airport will be influenced by U.S. Department of Defense policy, which largely dictates the level of military activity at an airport. As shown in the table, no sustained military activity is projected to occur at the Airport during the projection period.

3.4.3 Passenger and All-Cargo Airline Landed Weight Projections

Table 3.15 presents historical and projected passenger and all-cargo airline landed weight at the Airport. Passenger airline landed weight is projected to decrease from 54,390,709 thousand pounds in 2004 to 51,577,732 thousand pounds in 2005. During the remainder of the projection period, passenger airline landed weight is projected to then increase to 65,543,648 thousand pounds in 2014. This increase represents a compounded annual growth rate of 2.7 percent during this period. As also shown in the table, all-cargo airline aircraft landed weight at the Airport is projected to increase from 4,880,066 thousand pounds in 2004 to 6,370,117 thousand pounds in 2014. This increase represents a compounded annual growth rate of 2.7 percent during this period. In general, the increases in landed weight for both the passenger and all-cargo airlines are projected as a result of the anticipated use of larger aircraft, including a shift from 50-seat regional jets to 70-seat regional jets, and/or increased numbers of operations (following termination of the operating limitations) at the Airport during the projection period.

City of Chicago



Table 3.15

Landed Weight Projections

(Weight in 1,000 Pound Units)


Majors/ Regionals/ U.S. Foreign Total All-Cargo

Year Nationals Commuters Flag Carriers Flag Carriers Passenger Airlines Carriers Airport Total

Historical

1999 42,918,676 3,626,921 5,854,933 5,616,468 58,016,998 3,755,673 61,772,671

2000 41,187,372 3,242,396 7,369,085 6,217,300 58,016,153 4,056,434 62,072,587

2001 38,615,172 4,998,274 5,518,917 5,659,974 54,792,337 4,022,430 58,814,767

2002 37,949,673 5,985,011 4,894,708 4,848,765 53,678,157 4,360,622 58,038,779

2003 34,066,477 7,434,118 4,731,393 5,190,372 51,422,360 4,774,436 56,196,796

2004 34,897,909 9,042,859 4,983,809 5,466,131 54,390,709 4,880,066 59,270,775

Projected1

2005 30,915,643 10,141,006 5,349,147 5,171,936 51,577,732 4,947,620 56,525,353

2006 31,586,639 10,374,650 5,430,945 5,266,932 52,659,166 5,081,179 57,740,345

2007 32,264,824 10,610,874 5,513,301 5,362,782 53,751,781 5,261,390 59,013,171

2008 34,532,316 10,502,020 5,949,249 5,554,198 56,537,783 5,396,930 61,934,713

2009 35,207,457 10,866,409 6,155,006 5,834,419 58,063,292 5,579,482 63,642,774

2010 35,918,242 11,222,101 6,362,553 6,073,190 59,576,086 5,717,003 65,293,090

2011 36,576,916 11,588,290 6,571,889 6,314,976 61,052,071 5,855,425 66,907,497

2012 37,240,098 11,976,790 6,760,775 6,527,141 62,504,803 6,041,399 68,546,203

2013 37,925,673 12,350,444 6,973,577 6,741,818 63,991,511 6,228,634 70,220,145

2014 38,649,577 12,746,897 7,188,168 6,959,006 65,543,648 6,370,117 71,913,766

Compounded

Annual Growth Rate

1999 - 2000 (4.0%) (10.6%) 25.9% 10.7% (0.0%) 8.0% 0.5%

2000 - 2001 (6.2%) 54.2% (25.1%) (9.0%) (5.6%) (0.8%) (5.2%)

2001 - 2002 (1.7%) 19.7% (11.3%) (14.3%) (2.0%) 8.4% (1.3%)

2001 - 2004 (3.3%) 21.9% (3.3%) (1.2%) (0.2%) 6.7% 0.3%

2004 - 2005 (11.4%) 12.1% 7.3% (5.4%) (5.2%) 1.4% (4.6%)

2005 - 2014 2.5% 2.6% 3.3% 3.4% 2.7% 2.8% 2.7%





City of Chicago



E-79


City of Chicago



Airport Facilities and Development

This chapter presents a summary of existing Airport facilities and a description of ongoing and potential capital projects at the Airport.

4.1 Existing Airport Facilities

The Airport is the primary commercial-service airport in the Chicago Region. It occupies approximately 7,000 acres of land 18 miles northwest of downtown Chicago. Exhibit 4.1 depicts the existing facilities at the Airport. As shown, these facilities consist of the airfield, terminal area, air cargo and maintenance hangar areas, former military area, and various Airport support areas.

4.1.1 Airfield 1

The Airport has six main runways used primarily by the passenger and all-cargo airlines and one runway (Runway 18-36) used by general aviation aircraft. A network of taxiways, aprons, and aircraft holding areas supports these runways. Three runways are more than 10,000 feet long, and 11 of 12 air carrier runway ends have electronic and other navigational aids that permit aircraft to land in most weather conditions. The six main runways are arranged in three sets of parallel runways, which allow for simultaneous, independent aircraft operations on each set. During visual flight rules (VFR) conditions in clear weather, as many as three arrival runways and two departure runways are available in most operating configurations. During instrument flight rules (IFR) conditions in poor weather, two arrival runways and two departure runways are available. Exhibit 4.2 presents the most common operating configurations.

4.1.2 Terminal Area

The airlines serving the Airport operate from four terminal buildings with a total of 178 gates.2 Three terminal buildings, with a total of 157 gates, serve domestic flights and certain international departures. The domestic terminal complex is centrally located within the terminal area. The international terminal facility is located in the eastern portion of the terminal area and has 21 gates and five hardstand positions. The international terminal serves departures and all international arrivals requiring federal inspection services (FIS), as well as some domestic departures and arrivals. The Department of Aviation is planning to relocate offices from the terminal core to a building in the military area (see subsection 4.1.6), making about an additional 56,000 square feet available for airline use or concession buildout in the domestic terminal.

Located within the terminal area are a hotel, an elevated parking structure, and the Airport Heating and Refrigeration Plant. The 10-story hotel, leased and operated by Hilton Hotels Corporation, provides 858 guest rooms, as well as restaurants and meeting facilities. The six-story parking structure adjacent to the domestic terminals contains approximately 9,300 spaces for public and employee parking. The Heating & Refrigeration Plant, located northeast of the domestic terminals, provides heating and air conditioning for all of the terminal buildings.

4.1.3 Air Cargo Areas

The Airport is a major center for air cargo shipments. In the land support area surrounding the airfield, there are 14 buildings used for air cargo operations. The main cargo area is on the southwest side of the Airport – the South Cargo Area. Additional cargo facilities are located within Airport support areas in the eastern and

1 For the purposes of this report, the subsection titles represent physical/geographical locations at the Airport that correspond

with the facilities shown on Exhibit 4.1. These do not necessarily correspond with areas of the Airport identified as Cost-Revenue Centers of the same or similar names identified in the Chicago-O’Hare International Airport Amended and Restated Airport Use Agreement and Terminal Facilities Lease dated as of January 1, 1985, which are also defined by reference to geographical locations at the Airport.

2 A gate is defined as a doorway with an associated holdroom, which provides passenger access to aircraft. A gate, as defined here, may serve multiple aircraft parking positions.

City of Chicago



Exhibit 4.1Source: Ricondo & Associates, Inc.Prepared by: Ricondo & Associates, Inc.

north Existing Airport Layout

NorthMaintenanceHangar Area

FormerMilitaryArea

AirportSupportArea/SurfaceParking

AirportSupportArea

AirportSupportArea

SouthCargoArea

TerminalArea

Irving Park Road

Yo

rkR

oa

d

Touhy Avenue

Northwest Tollway I-90

I-190

32R

9L36

18

9R

14L

22R

27R

27L

32L

14R

4R

22L

West Higgins Road

Mannheim

Road

South DetentionBasin

Union Pacific Rail Line

4L

Mt. Prospect Road

City of Chicago



Operating ConfigurationsExisting AirfieldNorth

Exhibit II-6

Sources: Ricondo & Associates, Inc.ORD ATCT


Plan W

LegendExisting Runways

Primary Arrivals

Overflow Arrivals

IFR Parallel 14s

IFR Parallel 27sPlan B

Plan X

Overflow Departures

Primary Departures

27.0% 46.6%

6.0%17.1%

3.3%

Exhibit 4.2

City of Chicago



southeastern sections of Airport property. Two U.S. Postal Service facilities are located at the Airport: one within the South Cargo Area along Irving Park Road, and the other within the Airport support area in the southeast quadrant of Airport property.

4.1.4 Maintenance/Airport Support Areas

Eight aircraft maintenance hangars in the northwest corner of existing Airport property (the North Maintenance Hangar Area) are leased by airlines, along with three additional buildings used for airline ground equipment maintenance, and two flight kitchens. In addition to the North Maintenance Hangar Area, other Airport support areas surround the airfield. An Airport maintenance complex, which is used to store snow removal and other Airport maintenance equipment, and another flight kitchen are located within the Airport support area on the southeast side of the Airport.

4.1.5 Surface Access/Parking

Access to the passenger terminal complex is provided via Interstate 190 from the east side of the Airport. This roadway may be accessed from Interstate 90 or Mannheim Road, which borders the Airport to the east. Other roadways that surround Airport property include West Higgins Road and Touhy Avenue to the north, York Road to the west, and Irving Park Road to the south.

The ground transportation system at the Airport was expanded in 1993 with the opening of the Airport Transit System (ATS), an automated train system that travels approximately 2.7 miles on a dedicated guideway. The ATS provides passengers, free of charge, with a means of fast and convenient transportation between the three domestic terminals, the international terminal, and the long-term parking lots.

Parking is provided in various locations throughout the Airport. As previously mentioned, a parking structure adjacent to the domestic terminals accommodates a major portion of the Airport’s short-term public parking demand. This structure is supplemented by additional surface parking for the public and employees in various locations throughout the Airport. The main employee surface parking lots are within the North Maintenance Hangar Area, while public surface parking lots are located within the terminal area and in the Airport support area along Mannheim Road. Current surface parking capacity consists of approximately 13,000 and 18,000 public and employee parking spaces, respectively.

4.1.6 Former Military Area

In 1996, the City agreed to purchase from the federal government approximately 350 acres of land in the northeast quadrant of the Airport formerly used as a base for U.S. Air Force operations. In 1999, the largest remaining military unit at the Airport, the Air National Guard Refueling Wing, was deactivated and relocated to Scott Air Force Base in St. Clair County, Illinois. The former military area at O’Hare is now being used for general aviation activity, air cargo operations, and aircraft fuel distribution. The Department of Aviation and O’Hare Modernization Program (OMP) personnel are also planning to relocate offices into an existing building on the site.

4.2 Capital Development Programs Included in the Master Plan

The O’Hare International Airport Master Plan published in 2004 (the Master Plan) describes numerous projects to be constructed through the Capital Improvement Program (CIP), World Gateway Program (WGP), and OMP for the period 2003-2022. The Master Plan and FEIS assume that all projects will be built within the 20-year planning horizon, with most facilities complete by 2013.

4.2.1 Capital Improvement Program

The Master Plan assumed construction of the CIP over the 20-year planning horizon from 2003 through 2022. The CIP addresses the Airport’s facility needs and is essentially a repair and replacement program. For Master Plan purposes, a CIP over 20 years was considered; however, the Airport regularly adopts a 5-Year CIP for

City of Chicago



budget and planning purposes. The current 5-Year CIP is for the years 2005 through 2009, and its total cost is $1.23 billion (in escalated dollars).

4.2.2 World Gateway Program

The WGP was conceived to expand gate capacity through construction of new terminal complexes and enabling projects and provide additional improvements within the Terminal Area. In December 2000, the City commenced work on the formulation of WGP Phase 1 (the WGP Formulation Project). In September 2002, in light of changed conditions in the industry and the economy, the City and the airlines agreed to suspend further work on the WGP. The City’s design-build contractor for the Terminal 6 Complex was directed to complete its 30 percent design submittal and demobilize. All other formulation work was suspended. Work will resume consistent with demand and upon receipt of airline funding approval.

4.2.3 O’Hare Modernization Program

As stated in the FEIS, the historic factors that have combined to make Chicago a key transportation hub in the nineteenth century, and the twentieth century aviation market forces that have consistently made O’Hare one of the world’s busiest and most congested airports, are expected to continue. Both the current and forecast aviation demand in the Chicago market signal an urgent need for significant action to reduce congestion and delay.3

OMP Purpose and Need

O’Hare consistently ranks as the nation’s first or second busiest airport. In 2004, O’Hare was the busiest airport in terms of operations, with 992,427 aircraft operations, and the second busiest airport in terms of passengers, with approximately 37.4 million domestic and international enplaned passengers. The FEIS noted that with the existing conditions at O’Hare, the physical and operational characteristics of O’Hare contribute to high levels of congestion and delay and that these effects are expected to become more severe over the forecast period in the FEIS. Working with the City and the air carriers, as members of the 1991 and 2001 O’Hare Delay Task Force, the FAA developed and implemented many of the Task Force recommendations to reduce delays. However, delays persisted. In 2003, O’Hare experienced more delays than any other airport in the country. Congestion and delay at O’Hare in turn affects the efficiency of the entire National Airspace System (NAS).4

O’Hare was ranked as the most delayed airport in the United States in terms of number of delays (flights delayed 15 minutes or more) and in terms of total delay minutes for calendar year 2004, according to FAA’s Operations Network (OPSNET) database. Recently, O’Hare was ranked as the second-most delayed airport in the United States in terms of number of delays and the most delayed airport in terms of total delay minutes for the first 9 months of Calendar Year 2005, according to OPSNET. The intensity of flight delays is exacerbated during peak traffic periods and during periods of poor weather and/or wet runway conditions. These delay periods affect the Airport’s ability to provide a consistent level of air service to the traveling public and other Airport users. In addition, as aviation demand increases over time, flight delays will continue to worsen, thus further deteriorating the Airport’s operational reliability.

The OMP will enhance both O’Hare capacity and airport capacity nationwide. The FEIS defines the purpose and the need of the OMP development as follows:

To address the projected needs of the Chicago region by reducing delays at O’Hare, thereby enhancing capacity of the National Airspace System, and ensuring that existing and future terminal facilities and supporting infrastructure can efficiently accommodate airport users.

3 O’Hare Modernization Final Environmental Impact Statement dated July 2005, FAA, page ES-11. 4 Ibid, page ES-9.

City of Chicago



Under the OMP, the airfield is to be reconfigured into a modern parallel runway system, allowing more efficient operations. The overriding physical characteristic of the OMP is the reconfiguration of the airfield from sets of parallel runways in three main directional orientations (northeast/southwest, east/west, and northwest/southeast) to six parallel runways in the east/west direction and two runways in the northeast/southwest direction (see Exhibit 4.3). This reconfiguration will involve the construction of one new runway, the relocation of three existing runways, and the extension of two existing runways, while maintaining the use of two existing runways. From an airfield capacity standpoint, the OMP provides for triple independent simultaneous approaches in the east/west directions during IFR conditions in poor weather and quadruple independent simultaneous approaches during VFR conditions in clear weather. Additionally, the Airport will be able to accommodate new, larger Airplane Design Group VI aircraft, as classified by the FAA, with wingspans exceeding 214 feet. Exhibit 4.4 presents the most common operating configurations after completion of OMP. The major benefits expected through development of the OMP are as follows:

Delay Reduction: The OMP will ultimately reduce delays by over 70 percent at existing demand levels with greater delay reduction expected during periods of higher demand.5 The planned runway layout will ultimately provide balanced arrival and departure capabilities to address delay during all weather conditions and peak periods.

Capacity Increase: The capacity increases achieved through the OMP are expected to meet aviation demand in the Chicago Region beyond 2030.

In addition to airfield modifications, the OMP will enhance other areas of the Airport. The OMP also includes the expansion of terminal facilities to the west and ultimate development of a western access road to the Airport. New navigational aids will be added and existing navigational aids will be upgraded. New north and south Airport traffic control towers (ATCTs) will be constructed to ensure full air traffic control coverage of the expanded airfield. Public and employee parking facilities will be expanded to meet demand and a new secure automated people mover system will link a future west terminal to the existing terminal core.

OMP Cost

The OMP was introduced as a conceptual plan in 2001. The City began detailed planning and preliminary engineering work, producing a detailed cost estimate in January 2003. This January 2003 estimate, prepared by the City’s construction management team, estimated the OMP to be $6.6 billion when de-escalated to 2001 dollars. The FAA has reviewed this estimate and concluded in the FEIS that the estimated costs of the project are reasonable.6 The FAA estimates this total to be $7.5 billion when escalated to 2004 dollars.

The City is implementing OMP in phases. It reached a funding agreement with the airlines in May 2003 for the initial phase of construction, OMP-Phase 1 (see Section 4.3.1 for detailed information on the OMP-Phase 1 projects). The estimated cost of OMP-Phase 1, including the OMP-Phase 1 Noise Program, is approximately $2.6 billion (in 2001 dollars) or $2.88 billion (in escalated dollars).

OMP Benefits

Exhibit 4.5 presents the most common operating configurations after completion of OMP-Phase 1. A comparison of the amount of delay during existing conditions, at the completion of OMP-Phase 1, and at the completion of OMP is presented. As shown in the following table, at a level of 974,000 operations and 2,750 peak month average day operations, estimated delay is as follows: existing airfield, 16.9 minutes; OMP-Phase 1 airfield, 7.9 minutes; and OMP airfield, 3.2 minutes.

5 Airport Layout Plan Submittal, O’Hare International Airport, Ricondo & Associates, Inc., December 2002. 6 O’Hare Modernization Final Environmental Impact Statement dated July 2005, FAA, page 53.

City of Chicago



Exhibit 4.3Source: Ricondo & Associates, Inc.Prepared by: Ricondo & Associates, Inc.

north

O’Hare Modernization ProgramRunway Configuration

Touhy Avenue

Relocated Union Pacific Rail Line

DetentionBasin

Northwest Tollway I-90

10R

10C

10L

9R

9C

9L 27R

27C

27L

28L

22R

4L

4R

22L

Legend

OMP Phase 1

Future OMP Development

York

Road

Touhy Avenue

I-190

West Higgins Road

Mannheim

Road

Irving Park Road

FutureWesternTerminalComplex

Mt.Prospect Road

28R

Existing Runway to Remain

28C

Ultimate Property Line

City of Chicago



Operating ConfigurationsCompletion of OMPNorth

Sources: Ricondo & Associates, Inc.



Proposed Runways

Primary Arrivals

Overflow Arrivals

Primary Departures

VFR-1 Parallel 9s VFR-2 Parallel 9s

VFR-2 Parallel 27sVFR-1 Parallel 27s

IFR Parallel 9s IFR Parallel 27s

12.6%

41.4%

10.6%

26.1%

4.5% 4.8%

Overflow Departures

Exhibit 4.4ORD ATCT

City of Chicago



VFR-3 Parallel 9s

IFR Parallel 9s

IFR Parallel 27sVFR Parallel 27s

VFR-4 Parallel 9s

Operating ConfigurationsCompletion of OMP-Phase 1North

Exhibit II-6Sources: O’Hare Air Traffic WorkgroupPrepared by: Ricondo & Associates, Inc.


Proposed Runways

Primary Arrivals

Overflow Arrivals

Departure Purposes Only

Primary Departures

Closed

17.9% 5.2%

67.6% 4.8%

4.5%

Exhibit 4.5

City of Chicago



Chicago O'Hare International AirportDelay in Minutes per Aircraft

974,000 Annual Operations - 2,750 Peak Month Average Day Operations

3.2

7.9

16.9

0

2

4

6

8

10

12

14

16

18

Existing Airfield OMP - Phase 1 Airfield OMP Airfield

Dela

y in M

inute

s

4.3 Approved Portions of the Capital Development Programs

Although the Master Plan included broader development plans, what is described below in more detail are the portions of the capital development programs that have received funding approval from a Majority-in-Interest (MII) of the airlines or which have been allocated funding from sources that do not require MII approval. MII means, during any Fiscal Year, either (1) any five or more signatory airlines which, in the aggregate, paid 60 percent or more of the Airport Fees and Charges paid by all signatory airlines for the preceding Fiscal Year, or (2) any numerical majority of signatory airlines which, in the aggregate, paid 50 percent or more of Airport Fees and Charges paid by all signatory airlines for the preceding Fiscal Year.

The City has received airline MII funding approval for OMP-Phase 1 and a portion of the 5-Year CIP. The City and airlines have agreed to continue negotiations for additional funding approvals for the full OMP. The City and the airlines will also continue to negotiate funding approvals for the remaining 5-Year CIP projects, a portion of which will be funded solely from various sources which require no additional airline funding approvals. The City received MII funding approval for the WGP Formulation Project. No further airline negotiations related to the WGP are currently underway.

A summary of the project costs for OMP-Phase 1 (in escalated dollars, except for the OMP-Phase 1 Noise Program, which is not subject to escalation), the approved projects of the 5-Year CIP7 (in escalated dollars), and the WGP Formulation Project (in actual project cost) is presented in Table 4.1. The debt service associated with the portions of the capital development programs described as follows is included in the financial projections presented in Chapter 5 of this report.

7 For purposes of this report, the approved portion of the 5-Year CIP means those projects funded, or to be funded, from

already approved passenger facility charges (PFCs), general airport revenue bonds (GARBs) for which the City has already received airline MII funding approval, Airport Improvement Program (AIP) grants already awarded by FAA, and funds from an Other Transaction Agreement (OTA) with the Transportation Security Administration (TSA).

City of Chicago



Costs of Capital Development Programs

Amount (in Thousands)

OMP-Phase 1: 1, 2

Program Administration $326,166

Preliminary Engineering 47,260

Land Acquisition/Wetlands Mitigation/OMP-Phase 1 Noise Program 3548,162

New Future Runway 9L-27R 393,471

Extension of Future Runway 10L-28R 202,962

Future Runway 10C-28C 1,362,320

SUBTOTAL OMP-PHASE 1 (includes OMP-Phase 1 Noise Program) $2,880,341

Approved Portion of 5-Year CIP (2005-2009): 2

Terminal Improvements $283,417

Terminal Support Improvements 48,782

Airfield Improvements 76,241

Heating and Refrigeration System Improvements 13,484

Noise Mitigation Projects 58,560

Safety and Security Enhancements 93,083

Planning Projects 2,281

Implementation Costs 46,450

SUBTOTAL APPROVED PORTION OF 5-YEAR CIP (2005-2009) $622,298

WGP FORMULATION PROJECT 4 $69,700

TOTAL $3,572,339

Note: Totals may not add due to rounding.

1 Approved budget as of the date of this report.2 In escalated dollars.3 The cost of the OMP-Phase 1 Noise Program is not subject to escalation.4 The WGP Formulation Project has already been funded from the proceeds of previously issued

GARBs and PFC revenue.

Source (CIP): City of Chicago, April 2005.

Sources (OMP-Phase 1): TOK LLC,

AOR,

O'Hare Partners,

City of Chicago


Table 4.1

City of Chicago



4.3.1 OMP-Phase 1

Approximately $1.02 billion of the total $2.88 billion cost of the OMP-Phase 1 Projects (including the OMP-Phase 1 Noise Program) is to be funded with proceeds of the Series 2005 Bonds.

Major project components of OMP-Phase 1 include:

Program administration.

Preliminary engineering for the full OMP.

Land acquisition and relocation services for the full OMP, including approximately 433 acres of land near the northwest and southeast quadrants of Airport property, and one cemetery.

Wetlands mitigation.

OMP-Phase 1 Noise Program.

New Future Runway 9L-27R.

Extension of Future Runway 10L-28R (Existing Runway 9R-27L).

Future Runway 10C-28C (Relocation of Existing Runway 18-36).8

The definition of the OMP-Phase 1 program used in this report is based on the series of airline MII funding approvals in place as of the date of this report. The FAA’s FEIS and the City’s Master Plan detail additional projects that are intended to be implemented concurrently or consecutively with those for which MII funding approvals currently exist. The City continues to negotiate with the signatory airlines for the remainder of the necessary MII funding approvals, as well as to pursue alternative financing methods, in order to implement the OMP in its entirety as quickly as possible.

Further detail on the runway projects and associated enabling projects included as part of OMP-Phase 1 follows.

New Future Runway 9L-27R

New Future Runway 9L-27R, including associated taxiways and other support development is to be the first runway constructed as part of OMP-Phase 1. The purpose of this runway is to reduce aircraft delay during IFR conditions in poor weather, as it will allow for a third stream of independent arriving aircraft during IFR conditions. Construction of this runway is dependent on the relocation and/or reconfiguration of various facilities, roads, waterways, and the acquisition of land near the northwest quadrant of the Airport. The following enabling projects are associated with this planned runway development:

Acquisition of approximately 135 acres of land near the northwest quadrant of Airport property (existing facilities in this area are required to be demolished);

Relocation of a portion of Willow-Higgins Creek and associated culvert development;

Relocation of a major water main crossing the alignment of the proposed runway;

Expansion of the northern storm water detention facilities;

Development of a new ATCT in the north airfield; and

Realignment of an Airport service/employee access roadway along Mt. Prospect Road, and relocation of the associated guard post and security facilities.

8 This runway will ultimately be designated 10C-28C following completion of the planned far south runway in a future phase

of the OMP; however, it may have a different interim designation. For purposes of this report, this runway will be referred to as proposed Runway 10C-28Cso as not to confuse reference to the future far south Runway 10R-28L planned as part of the full OMP.

City of Chicago



Extension of Future Runway 10L-28R (Existing Runway 9R-27L)

Construction of a proposed approximate 2,859-foot westward extension to existing Runway 9R-27L (future Runway 10L-28R), associated taxiways, and other support facilities will also be undertaken as part of OMP-Phase 1. This proposed extension will increase the runway’s available length to 13,000 feet. Runway 10L-28R will become the longest at the Airport after existing Runway 14R-32L is shortened and ultimately decommissioned as part of the OMP. The relocation of navigational aids and runway approach light systems are the major enabling projects required as part of this planned runway extension.

Relocation of a segment of the Union Pacific Railroad tracks in the southwest corner of the Airport;

Reconfiguration of the intersection of Irving Park and York Roads; and

Relocation of navigational aids and runway approach light systems.

Future Runway 10C-28C (Relocation of Existing Runway 18-36)

Future Runway 10C-28C, associated taxiways, and required support facilities are also to be developed as part of OMP-Phase 1. The following are the associated enabling projects required with this planned runway:

Relocation of a segment of the Union Pacific Railroad tracks in the southwest corner of the Airport;

Acquisition of approximately 298 acres of land near the southwest quadrant of Airport property;

Relocation of St. Johannes Cemetery;

Reconfiguration of the South Detention Basin. Additional stormwater capacity will also be constructed in the existing detention basin west of Runway 14R-32L;

Relocation of existing cargo facilities within the northern half of the South Cargo Area; and

Rerouting of the Bensenville Ditch.

As necessary, various improvements will also be implemented to relocate and expand existing utilities and infrastructure. Anticipated improvements include, but are not limited to, utilities (e.g., stormwater collection and detention, water supply lines, electrical, sanitary sewer system), vehicle service road segments, and perimeter fencing. The total capital cost of OMP-Phase 1, including the OMP-Phase 1 Noise Program, is approximately $2.88 billion (in escalated dollars).

OMP-Phase 1 Sub-Phases

For purposes of identifying phased development, OMP-Phase 1 was further categorized in the May 2003 MII funding approvals into four sub-phases: 1A, 1B, 1C, and 1D. The sub-phases have been further combined for discussion purposes in this report. A general description of each subphase follows.

Phase 1A/B: Includes the completion of all physical and operational planning, environmental permitting, preliminary and detailed engineering, and ongoing property acquisition and relocation services for the full OMP. This subphase also includes the construction of New Future Runway 9L-27R, including enabling projects; reconfiguration of the intersection of Irving Park and York Roads; and certain projects associated with relocation of the segment of the Union Pacific Railroad tracks.

Phase 1C/D: Includes the remaining projects associated with relocation of the segment of the Union Pacific Railroad tracks and required wetlands mitigation. This subphase also includes projects associated with construction of the extension of Future Runway 10L-28R and Future Runway 10C-28C.

Conditions Related to MII Funding Approvals

In the May 2003 airline MII funding approvals, the signatory airlines approved funding of construction of the OMP-Phase 1 A/B and C/D sub-phases once certain operational triggers were met and the City secured one or

City of Chicago



more Letter of Intent (LOI) commitments from the FAA totaling $300 million (or could secure replacement funding from other sources that combined with an LOI, if any, have the same effect as the receipt of the LOI commitment of $300 million). In 2004, the City achieved the two operational triggers of 960,000 aircraft operations during 12 consecutive months for OMP-Phase 1C and 980,000 aircraft operations during 12 consecutive months for OMP-Phase 1D. In 2005, the City achieved the funding condition when it received an LOI award from the FAA for $300 million in discretionary funds.

4.3.2 OMP-Phase 1 Noise Program

The Airport, in accordance with criteria established by the O’Hare Noise Compatibility Commission, plans to continue to provide sound insulation of eligible schools and homes. Sound insulation may include, but is not limited to the following: installation of heating and air conditioning systems, replacement of existing windows and exterior doors with sound insulating windows and doors, addition of insulation to exterior walls and ceilings, and addition of baffling devices to exterior vents. The OMP-Phase 1 Noise Program is the portion of the noise program approved by the airlines as part of the airline funding approval for OMP Phase 1. The OMP-Phase 1 Noise Program is not being funded with the Series 2005 Bonds; it is expected to be funded solely from FAA grants and passenger facility charges (PFCs) on either a pay-as-you-go basis or through the issuance of PFC-backed bonds.

The OMP-Phase 1 Noise Program is in addition to and separate from the completion of the existing noise mitigation projects described as part of the 5-Year CIP. The noise mitigation projects in the ongoing CIP are expected to be funded from grants provided by FAA.

4.3.3 Approved Portion of the 5-Year CIP (2005-2009)

The capital cost for the approved portion of the 5-Year CIP (2005-2009) is approximately $622.3 million, of which $200.9 million has been funded with previously issued GARBs, $363.0 million has been funded from other sources, $58.4 million is expected to be funded with future Airport Obligations, and none of which will be funded with the Series 2005 Bonds. The 5-Year CIP includes: terminal improvements, terminal support improvements, airfield improvements, heating & refrigeration system improvements, noise mitigation projects, safety and security enhancements, planning projects, and implementation costs.

Terminal Improvements

The City plans to maximize Airport capacity and passenger convenience, currently limited by terminal space constraints, primarily through implementation of the FACE (Facade and Circulation Enhancement) project. The principal objective of the FACE project is to provide more efficient queuing and circulation space at the departures level in Terminals 2 and 3, and improve vertical circulation in Terminals 1, 2, and 3. The project began in 2002 and is now approximately 40 percent complete. The different components of the project will be completed in phases through 2008, allowing each of the terminals to remain fully operational throughout the construction schedule. Separately, other projects include upgrades to Concourses E and F and new interior finishes and replacement of moving walkways in nine underground pedestrian corridors. Additionally, the Airport plans equipment modernization projects and Concourse E/F upgrades. The estimated total cost of these projects is $283.4 million.

Terminal Support Improvements

Included in the Terminal Support improvements are upgrades to critical infrastructure through rehabilitation or replacement of existing utilities serving the terminals, replacement of ATS guideway cables and wire, configuration and interconnection of the automatic vehicle identification system for ground transportation, and consolidation of Department of Aviation office space. The estimated total cost of these projects is $48.8 million.

City of Chicago



Airfield Improvements

The City plans to rehabilitate Taxiways W and E, and numerous apron ramps, as well as improve airfield drainage and other airside facilities. Runway and taxiway improvements consist of rehabilitation of the existing pavement and placement of a new bituminous concrete overlay or full-depth pavement replacement, various shoulder improvements, grading, grooving, drainage, and lighting refurbishment or upgrades. Apron improvements consist of the removal and replacement of the apron pavement and drainage improvements at the passenger terminals and concourses. Additionally, the City plans to upgrades to the Airport’s mass snow disposal program and the purchase equipment for snow removal operations, fire/rescue services, site security, and O&M site supervision. The estimated total cost of these projects is $76.2 million.

Heating & Refrigeration System Improvements

Included in the Heating & Refrigeration System improvements are structural restoration/modification of the utility ring tunnel, replacement of single duty high temperature and low temperature water converters, and replacement of the north cooling tower. The estimated total cost of these projects is $13.5 million.

Noise Mitigation Projects

In addition to embarking on the OMP-Phase 1 Noise Program, the City plans to complete its current noise mitigation program for schools and homes. The total remaining cost of these noise mitigation projects, excluding the OMP-Phase 1 Noise Program, is $58.6 million.

Safety and Security Enhancements

Included in the planned security enhancements are studies, design, and constructions, and other allocable soft costs for the incorporation of explosives detection systems in the existing baggage system. The estimated total cost of these projects is $93.1 million.

Planning Projects

An additional project within the 5-Year CIP is general land use planning. The estimated total cost of this project is $2.3 million.

Implementation Costs

Additional costs within the 5-Year CIP are related to program implementation, which include program planning, program management, financial feasibility, construction management and field supervision, program security, and allocable Department of Aviation staff costs. The estimated total implementation costs are $46.5 million.

4.3.4 WGP Formulation Project

As part of the WGP Formulation Project, all deliverables (including 30-percent design for the Terminal 6 Complex) were reviewed; WGP project records (electronic and hard copy) were archived; and a manual of program restart procedures was prepared to facilitate the efficient resumption of the program. The City continues to monitor gate usage and demand, as well as financial impacts, in order to determine the appropriate timing for the restart of the WGP. The total cost of the completed WGP Phase 1 Formulation Project was $69.7 million (actual project cost), which was funded from the proceeds of previously issued GARBs and PFCs.

City of Chicago




City of Chicago



Financial Analysis

The financial structure of the Airport, the cost and other financial implications of the issuance of the Series 2005 Bonds, and the future bonds necessary to complete the funding of OMP-Phase 1 are discussed in this chapter. Projections of Operation and Maintenance (O&M Expenses), non-signatory airline and non-airline revenues, Debt Service, net signatory airline requirements, Airport Fees and Charges, airline revenues, Debt Service coverage, and airline cost per enplaned passenger are also discussed. In addition, discussion of a sensitivity analysis conducted to quantify the financial impacts of a hypothetical material change in airline service at the Airport is presented.

5.1 Financial Structure

Airport accounting practices, including the Cost-Revenue Center (CRC) structure used for airline rate-setting, the requirements governing the issuance of airport revenue bonds by the City, and the rate-setting mechanism in place at the Airport are discussed in this section.

5.1.1 Airport Fees and Charges

The Airport is owned by the City and operated by the Department of Aviation as a self-supporting enterprise fund of the City. The City maintains the books, records and accounts of the Airport in accordance with generally accepted accounting principles and as required by the provisions of the Airport Use Agreements, the Bond Ordinance, Second Lien Indenture, and Third Lien Indenture. The City’s fiscal year ends December 31.

Under the Airport Use Agreements, in order to equitably allocate the net cost of operating, maintaining, improving and expanding the Airport among the airlines that are signatory to the Airport Use Agreement (the Airline Parties, as listed on the following page), various physical and functional areas of the Airport are separated for the purposes of accounting for the O&M Expenses, Revenues, required fund deposits, and Debt Service on Airport Obligations. Each such designated area is a CRC. An allocable share of the net deficit generated in the Terminal Area, Airfield Area, and Fueling System CRCs is paid by the Airline Parties as part of their Airport Fees and Charges for the use of the Airport. The Airport Use Agreements provide that the aggregate of Airport Fees and Charges paid by the Airline Parties must be sufficient to pay for the net cost of operating, maintaining, and developing the Airport (excluding the Land Support Area) including the satisfaction of Debt Service coverage, deposit, and payment requirements of the Bond Ordinance and the Indentures.

Five CRCs in the Airport’s financial structure impact the calculation and adjustment of Airport Fees and Charges, as follows:

Airfield Area. The Airfield Area includes the aircraft parking areas, runways, taxiways, approach and runway protection zones, infield areas, navigational aids, and other facilities related to aircraft taxiing, landing, and takeoff.

Terminal Area. The Terminal Area includes the domestic terminal buildings, and a designated portion of the Heating & Refrigeration Plant.

Terminal Support Area. The Terminal Support Area includes the public parking facilities, roadways, walkways, automobile rental areas, ground transportation system, and the existing Airport hotel.

International Terminal Area. The International Terminal Area includes the International Terminal and a designated portion of the Heating & Refrigeration Plant.

Fueling System. The Fueling System includes the tank farm and all facilities that are part of the Airport’s hydrant fueling system.

City of Chicago



The revenues and expenses of the Land Support Area, which is described below, are not included in the calculation of Airline Parties’ Airport Fees and Charges.

Land Support Area. The Land Support Area includes certain vacant land and air rights and facilities such as air cargo, hangar, flight kitchen and freight forwarding facilities. Principally, these areas and facilities are located on the perimeter of Airport property.

5.1.2 Bond Ordinance and Indentures

The Bond Ordinance specifies the security for bondholders and provides conditions for issuing general airport revenue bonds. The City has issued first lien, second lien, and third lien revenue bonds under the Bond Ordinance, Second Lien Indenture, and Third Lien Indenture, respectively. The application of revenues while First Lien Bonds are outstanding is shown on Exhibit 5.1. Certain provisions and the rate covenants of the Bond Ordinance as well as the Second Lien Indenture and Third Lien Indenture are described in Appendix B of the Official Statement.

5.1.3 Airport Use Agreements

The Airport Use Agreements set forth the City’s main financial and operational arrangement with the airline tenants of the Airport. The Airport Use Agreements provide, among other things, contractual support of the Airline Parties for Bonds and other obligations issued to fund Airport capital improvements. The Airport Use Agreements are in place to formalize the rights and responsibilities of the Airline Parties and the Department of Aviation.

Currently, the City has Airport Use Agreements with Air Canada, Air Wisconsin, American Airlines, American Eagle, America West Airlines, Continental Airlines, Delta Air Lines, FedEx, Independence Air, Northwest Airlines, United Airlines, US Airways, and United Parcel Service. The Airport Use Agreements expire on May 11, 2018. In the aggregate, the Airline Parties accounted for approximately 82 percent of the total landed weight at the Airport in 2004. Airlines that are not signatory to an Airport Use Agreement (Non-Signatory Airlines) accounted for the remaining 18 percent of landed weight. Under the Airport Use Agreements, the City can finance Airport Capital Projects with Airport Obligations upon receipt of MII approval of the Airline Parties.

The Airport Use Agreements specify a residual rate-making methodology for the calculation of airline rates and charges. Generally, total operating and maintenance expenses and debt service (including coverage) is calculated for each CRC and offset by nonairline revenues.

Specifically, Revenues, O&M Expenses, Debt Service (including a Debt Service coverage component) and certain fund deposit requirements are allocated to each CRC (except the Land Support Area). Net deficits generated in the Terminal Area and the Airfield Area are paid by the Airline Parties in the form of Terminal Area Use Charges and Landing Fees, respectively. The net cost of the Fueling System is paid in the form of a Fueling System Fee.

The Airport Use Agreements do not provide for any specific fees and charges related to the Terminal Support Area or the International Terminal Area. Any Terminal Support Area net deficit or net surplus is allocated to the Terminal Area and the International Terminal Area. The net cost of the International Terminal Area is paid by the airlines that are signatory to an International Terminal Use Agreement and Facilities Lease (the International Terminal Airline Parties). Airlines or other users of the Airport who are not signatories to an Airport Use Agreement or an International Terminal Use Agreement are assessed Airport fees and charges enacted by City ordinances. The Airline Parties and International Terminal Airline Parties are collectively referred to as the Signatory Airlines in this report.

City of Chicago



DEBT SERVICE RESERVE FUND

MAINTENANCE RESERVE FUND

OPERATION & MAINTENANCERESERVE FUND

EMERGENCY RESERVE FUND

JUNIOR LIEN OBLIGATION DEBT SERVICE FUND

AIRPORT DEVELOPMENT FUND

Monthly FlowOn the tenth (10th) day of each month the Trustee shall make deposits in order of priorities set forth below:

Semi-Annual FlowOn the business day of the Trustee immediately preceding each Interest Payment Date, the Trustee shall make deposits in order of priorities set forth below:

OPERATIONS &MAINTENANCE FUND

SPECIAL CAPITAL PROJECTS FUND

DEBT SERVICE FUND

DEBT SERVICE FUND

Exhibit 5.1Source: General Airport Revenue Bond Ordinance Adopted March 31, 1983.Prepared by: Ricondo & Associates, Inc.

Application of RevenuesWhile First Lien Bonds Are Outstanding

REVENUE FUND*

*Pursuant to Section 503 of the General Airport Revenue Bond Ordinance.

City of Chicago



5.2 Financing Plan

Table 5.1 presents the estimated costs and sources of funds for OMP-Phase 1 (including the OMP-Phase 1 Noise Program), which the City intends to fund through a combination of PFC resources (PFC Double-Barreled Bonds and pay-as-you-go PFCs), General Airport Revenue Bonds (GARBs), and FAA Airport Improvement Program (AIP) grants. A portion of the costs of OMP-Phase 1 has already been funded from other Airport Obligations. As shown in Table 5.1, approximately $1.0 billion of Series 2005 Bond proceeds will be used to pay a portion of the cost of the OMP-Phase 1 Projects and refund proceeds of commercial paper that were used to fund a portion of the cost of OMP-Phase 1. Proceeds of the Series 2005 Bonds, together with other available Airport funds, will also be used to refund a portion of outstanding Series 1993A Bonds. Approximately $1,611.0 million of the total cost of OMP-Phase 1, including the OMP-Phase 1 Noise Program, remains to be funded after issuance of the 2005 Bonds, from the following sources: $360.3 million of FAA grants, $49.1 million of pay-as-you-go PFCs, $601.6 million of future PFC Double-Barreled Bonds, and $599.9 million of future GARBs.

Table 5.1 also presents the estimated costs and sources of funds for the approved portion of the 5-year CIP1,including approximately $58.4 million of MII-approved but yet to be funded capital projects. Any other projects in the 5-Year CIP or WGP that have not been approved are excluded from the calculation of future debt service.

5.2.1 Sources of Funding for OMP-Phase 1 Projects

FAA Airport Improvement Program Grants

The City expects to use a combination of entitlement and discretionary FAA AIP grants for eligible Airport projects. Under AIP, the City receives annual entitlement grants for use at the Airport based on the number of enplaned passengers and cargo tonnage at the Airport and is eligible to receive discretionary grants. On November 21, 2005, the FAA issued to the City an LOI to award $300 million in LOI discretionary grants for OMP-Phase 1 over a 15-year period from Federal Fiscal Years 2006 through 2020. The City expects to apply approximately $55.8 million in AIP entitlement grants through 2010 (including $18.6 million of prior entitlement grants and the $37.2 million of future entitlement grants referenced in the LOI), $300.0 million in AIP discretionary grants during the period from 2006 through 2020, and an additional $4.5 million of discretionary grants toward implementation of the OMP-Phase 1 Projects.

Passenger Facility Charge Revenues

The City has approval from the FAA to impose a PFC at the Airport and to use PFC revenue for approved Airport projects. The City collects a $4.50 PFC per eligible enplaned passenger less an $0.11 airline processing charge at the Airport. As of September 30, 2005, the City had authority to impose and use $3.0 billion of PFC revenues at the Airport. As of that date, PFC revenues received by the City for use at the Airport, including investment earnings, totaled $1.3 billion, of which $1.0 billion had been expended on approved project costs.

In 2006, the City intends to submit an application to the FAA for authority to impose a PFC and use PFC revenues to fund runway construction projects included in OMP-Phase 1. Approximately $49.1 million of the cost of OMP-Phase 1 and OMP-Phase 1 Noise Program is expected to be funded with pay-as-you-go PFC revenues. Approximately $601.6 million of the cost of OMP-Phase 1 and OMP-Phase 1 Noise Program is expected to be funded with PFC Double-Barreled Bonds, which the City intends to repay from PFC revenues.

1 For purposes of this report, the approved portion of the 5-Year CIP means those projects funded, or to be funded, from

already approved PFCs, GARBs for which the City has already received airline MII funding approval, AIP grants already awarded by FAA, and funds from an OTA with the TSA.

City of Chicago



Table 5.1

Costs of Capital Development Programs

Estimated Project Costs and Sources of Funds

(Dollars in Thousands)

Airport

Project Series 2005 Development

Completion Date Entitlement Discretionary TSA Funds Pay-As-You-Go Prior Bonds Future Bonds Prior Bonds Bonds Future Bonds Fund / Other TotalOMP-PHASE 1 Program Administration n.a. $16,656 $4,500 $0 $0 $0 $0 $34,640 $173,075 $97,295 $0 $326,166 Preliminary Engineering n.a. 0 0 0 0 0 0 30,442 16,818 0 0 47,260 Land Acquisition / Wetlands Mitigation / OMP-Phase 1 Noise Program n.a. 0 0 0 40,000 0 100,000 167,858 240,304 0 0 548,162 New Future Runway 9L-27R 2008 17,700 125,000 0 9,133 0 103,368 8,062 117,084 13,125 0 393,471 Extension of Future Runway 10L-28R 2007 1,984 50,000 0 0 0 51,594 761 73,694 24,928 0 202,962 Future Runway 10C-28C 2010 19,500 125,000 0 0 0 346,626 3,657 402,989 464,548 0 1,362,320OMP-PHASE 1 TOTAL $55,840 $304,500 $0 $49,133 $0 $601,588 $245,420 $1,023,964 $599,896 $0 $2,880,341

APPROVED PORTION OF 5-YEAR CIP (2005-2009) Terminal 2008 $0 $0 $0 $0 $177,988 $0 $102,084 $0 $3,279 $66 $283,417 Terminal Support 2009 0 0 0 0 0 0 34,721 0 10,260 3,800 48,782 Airfield 2006 5,420 3,000 0 5,401 13,338 0 16,835 0 30,337 1,910 76,241 Heating & Refrigeration System 2007 0 0 0 0 2,686 0 8,910 0 1,887 0 13,484 Noise Mitigation 2009 0 58,560 0 0 0 0 0 0 0 0 58,560 Safety and Security 2007 0 17,584 57,278 0 0 0 17,321 0 0 901 93,083 Planning n.a. 0 0 0 0 0 0 0 0 0 2,281 2,281 Implementation n.a. 0 198 0 5,298 7,114 0 20,990 0 12,664 186 46,450APPROVED PORTION OF 5-YEAR CIP TOTAL $5,420 $79,342 $57,278 $10,699 $201,127 $0 $200,861 $0 $58,427 $9,144 $622,298

CAPITAL DEVELOPMENT PROGRAMS TOTAL 1 $61,260 $383,842 $57,278 $59,832 $201,127 $601,588 $446,281 $1,023,964 $658,323 $9,144 $3,502,639

1 Totals may not add due to rounding.

Source (OMP): Fullerton & Friar, Inc., December 11, 2005.

Source (CIP): City of Chicago Department of Aviation, September 23, 2005.

Source (Project Completion Date): O'Hare Modernization Program, September 21, 2005.


FAA AIP Grants Passenger Facility Charges General Airport Revenue

City of Chicago



E-101

General Airport Revenue

Prior Bonds

Approximately $245.4 million of the cost of OMP-Phase 1 is being funded with the proceeds of previously issued GARBs, including GARBs that repaid commercial paper.

Series 2005 Bonds

Approximately $1,024.0 million of the cost of the OMP-Phase 1 Projects is expected to be funded with proceeds of the Series 2005 Bonds.

Future Bonds

After issuance of the Series 2005 Bonds, approximately $599.9 million of the costs of OMP-Phase 1 are estimated to be funded from future GARBs.

5.3 Operation and Maintenance Expenses Projections

O&M Expenses are the expenses associated with operating and maintaining the Airport. O&M Expenses are classified into the following categories:

Personnel Repairs and maintenance EnergyMaterials and supplies Engineering and professional services Other operating expenses

Equipment and property rental Insurance and miscellaneous Machinery Vehicles and equipment

These expenses are further allocated to the various CRCs for rate-setting purposes.

O&M Expenses decreased at a compounded annual growth rate of 0.3 percent from $318.4 million in 2000 to $315.2 million in 2004. O&M Expenses decreased 2.8 percent from 2003 through 2004, after increasing moderately at 0.6 percent from 2000 through 2003. The primary reason for the reduction in O&M Expenses in 2004 was management proactively keeping personnel vacancies unfilled following an early retirement initiative without compromising safety, security, or service levels. Also, some professional services costs incurred in 2004 were not paid until 2005 due to contractual issues. Historical O&M Expenses for 2000 through 2004 are presented in the following table:

City of Chicago




Historical O&M Expenses

2000-2004

2000 2001 2002 2003 2004

Compounded Annual Growth

RateTotal O&M Expenses

1

(thousands) $318,410 $320,341 $321,554 $324,330 $315,181 (0.3)%

Enplaned Passengers(thousands) 35,701 33,310 32,919 34,434 37,445 1.2%

Total O&M Expenses per Enplaned Passenger $8.92 $9.62 $9.77 $9.42 $8.42 (1.4)% 1

Excludes Land Support Area.

Source: City of Chicago Comptroller’s Office.

The Airport’s 2005 budget serves as the base year from which O&M Expenses are projected. O&M Expenses projections are based on the type of expense, expectations of future inflation rates assumed to be 3.0 percent annually, and incremental O&M expenses related to the construction of OMP-Phase 1. The Department of Aviation does not anticipate any incremental O&M expenses associated with the 5-Year CIP. Projected O&M Expenses are presented in Table 5.2. Areas where O&M Expenses are estimated to increase in the 2005 budget over 2004 results include the contract for operation and maintenance of the public parking facilities, ground transportation system, and ATS; maintenance and repair of certain infrastructure; operation of shuttle bus service; bi-annual mandated pavement and bridge inspections; and installation and maintenance of security cameras linked to City emergency systems. As shown in Table 5.2, total O&M Expenses are projected to increase from $352.7 million in 2005 to $600.9 million in 2014, at a compounded annual growth rate of 6.1 percent.

5.3.1 Personnel

Personnel expenses include Airport staff compensation as well as an allocation of personnel costs from other City departments that support Airport operations, such as Purchasing, Finance, and Corporation Counsel. Expenses for salaries, wages and employee benefits are projected to increase at a compounded annual growth rate of 6.6 percent through 2014. This is attributable primarily to salary increases, escalating insurance premiums, and other benefits increases, as well as additional expenses attributable to future projects.

5.3.2 Repairs and Maintenance

Repairs and maintenance expenses at the Airport include the cost of outside contractors that provide ramp repair, taxiway painting, outside janitorial services for terminals, heating and air conditioning, trash removal, escalator/elevator maintenance and miscellaneous repairs. Repairs and maintenance expenses are projected to increase at a compounded annual growth rate of 6.4 percent through 2014 primarily reflecting inflation, additional costs associated with maintaining existing aging facilities, and additional expenses related to future projects.

City of Chicago



Table 5.2

Operation and Maintenance Expenses

(Dollars in Thousands for Fiscal Years Ending December 31)

Budget Projected

20051

2006 2007 2008 2009 2010 2011 2012 2013 2014

Personnel Expenses 2

$167,493 $177,141 $187,319 $201,805 $216,231 $228,559 $251,962 $266,255 $281,334 $297,243

Repairs & Maintenance 3

36,050 38,033 40,125 43,186 46,221 48,763 53,816 56,776 59,898 63,193

Energy4

24,153 25,240 26,376 27,830 29,287 30,605 32,702 34,173 35,711 37,318

Materials & Supplies 5

14,672 15,112 15,565 16,721 17,742 18,274 20,601 21,219 21,855 22,511

Engineering & Professional Services 6

49,963 52,711 55,610 58,669 61,896 65,300 68,891 72,680 76,678 80,895

Other Operating Expenses 7

65,673 68,967 72,429 77,131 81,829 85,948 93,218 97,923 102,869 108,067

Subtotal O&M Expenses $358,005 $377,204 $397,423 $425,342 $453,205 $477,449 $521,189 $549,027 $578,346 $609,227

Less: Land Support Area 8

5,335 5,531 5,829 6,117 6,427 6,773 7,072 7,453 7,855 8,278

TOTAL O&M EXPENSES LESS LAND SUPPORT AREA 9

$352,669 $371,673 $391,594 $419,225 $446,779 $470,676 $514,118 $541,574 $570,491 $600,949

1 As of July 1, 2005.

2Includes all Airport staff plus an allocation of personnel costs from other City departments which support Airport operations such as Purchasing, Finance and Corporation Counsel.

3Equipment maintenance contracts, snow removal equipment rentals, painting, glass replacement, office fixtures, furnishings and other repair contracts.

4Gas, water, electricity and fuel oil required to operate the Airport.

5Disposal equipment, cleaning supplies, airfield deicing chemicals and other items used in daily Airport operations and maintenance.

6Fees for specialized engineering, legal and other technical services.

7Includes equipment and property rental, insurance, miscellaneous, machinery, and vehicles and equipment.

8Excludes Land Support Area per the Airport Use Agreements.

9Totals may not add due to rounding.

Source (2005): City of Chicago Department of Aviation.

Source (2006-2014): Ricondo & Associates, Inc.


City of Chicago



E-104

5.3.3 Energy

Energy costs include gas, water, electricity, and fuel oil required to operate the Airport. Energy costs are projected to increase at a compounded annual growth rate of 5.0 percent through 2014.

5.3.4 Materials and Supplies

Materials and supplies expenses include costs associated with the purchase of deicing fluid, office supplies, cleaning supplies, keys and locks, and other general maintenance supplies for the Airport. Materials and supplies are projected to increase at a compounded annual growth rate of 4.9 percent through 2014, primarily reflecting inflation and additional expenses related to future projects.

5.3.5 Engineering and Professional Services

Engineering and professional services expenses include fees for specialized engineering, legal and other technical services. These expenses are projected to increase at a compounded annual growth rate of 5.5 percent through 2014, primarily as a result of increases in billing rates. The use of outside professional services were assumed to remain constant through the projection period.

5.3.6 Other Operating Expenses

Other operating expenses include equipment and property rental, insurance, and miscellaneous expenses (administrative expenses, telephone and bad debt expenses), machinery, as well as vehicles and equipment. Equipment and property rental expenses include expenses related to the rental of heavy equipment and contracting of equipment operators, rental of unarmed security systems, operation of the automated transit system, shuttle bus services, rental of office equipment, and lease of a warehouse. Other operating expenses are projected to increase at a compounded annual growth rate of 5.7 percent through 2014, primarily reflecting inflation and the need to replace various equipment.

5.3.7 O&M Expenses Related to Future Projects

As the proposed OMP-Phase 1 airfield projects become operational, additional O&M Expenses can be expected to result from operation and maintenance of the runway pavement. Projections of O&M Expenses resulting from these projects were developed based on the incremental increase in runway pavement surface area in the Airfield. On the basis of a comprehensive analysis, Airfield Area O&M Expenses are projected to increase by approximately $31.6 million in 2011, the first full year all runways are expected to be operational, exclusive of other projected O&M Expenses. These incremental O&M Expenses are reflected in Table 5.2.

5.4 Non-Signatory Airline and Non-Airline Revenues

Non-Signatory Airline Revenues are revenues from airlines that are not parties to the Airport Use Agreement or International Terminal Use Agreement. Non-Airline Revenues are those revenues generated at the Airport from sources other than Airport Fees and Charges (e.g., parking, automobile rental, restaurant, etc.).

Most of the Airport’s Non-Airline Revenues come from concessions. The following table presents Concession Revenues at the Airport from 2000 through 2004. As shown, Concession Revenues increased at a compounded annual growth rate of 0.7 percent during that period. From 2002 through 2004, Concession Revenues increased 6.9 percent, consisting of a 5.3 percent increase from 2002 through 2003 and an 8.4 percent increase from 2003 through 2004. Specifically, parking revenue increased 8.7 percent, from $83.2 million in 2003 to $90.4 million in 2004. Overall concession revenue showed a similar increase of 8.4 percent, from $154.4 million in 2003 to $167.4 million in 2004, a record for the Airport. This is the result of continually enhanced concession offerings at the Airport, with local and national favorites well represented, as well as a significant increase in enplaned passengers. Prior to this period, Concession Revenues increased 5.1 percent from 2000 through 2002 due to the events of September 11 and the overall weakened economy.

City of Chicago




Historical Concession Revenues

2000-2004

2000 2001 2002 2003 2004

Compounded Annual Growth

RateTotal Concession Revenues

1

(thousands) $162,651 $151,094 $146,553 $154,368 $167,424 0.7%Enplaned Passengers(thousands) 35,701 33,310 32,919 34,434 37,445 1.2%

Concession Revenues per Enplaned Passenger $4.56 $4.54 $4.45 $4.48 $4.47 (0.5)%1 Excludes Land Support Area.

Source: City of Chicago Comptroller’s Office.

Projections of Non-Signatory Airline Revenues and Non-Airline Revenues are presented in Table 5.3.Revenues were projected on the basis of a review of historical trends, projected activity levels, and inflation. OMP-Phase 1 is not expected to directly affect Non-Airline Revenues. Land rentals for hangar and cargo facilities are allocated to the Land Support Area. These revenues are used to offset expenses incurred in the Land Support Area and are not considered to be Revenues, as defined under the Bond Ordinance, or pledged as security for GARBs; therefore, they are not included in Table 5.3 as Non-Airline Revenues. Further information regarding Non-Airline Revenues at the Airport is provided below.

5.4.1 Non-Signatory Airline Revenues

Non-Signatory Airline Revenues include landing fees and terminal rentals paid by airlines that are not parties to either the Airport Use Agreements or the International Terminal Use Agreements. These revenues are derived as a function of fees, rentals, and charges of the Airline Parties, based on O&M Expenses, Debt Service, and fund deposits. As shown in Table 5.3, Non-Signatory Airline Revenues are projected to increase from $15.0 million in 2005 to $36.1 million in 2014 at a compounded annual growth rate of 10.3 percent, and can be primarily attributed to increasing O&M Expenses and Debt Service.

5.4.2 Non-Airline Revenues

Non-Airline Revenues include revenues from Chicago International Carriers Association Terminal Equipment Corporation (CICA TEC); concessions, including automobile parking and rentals; and reimbursements and other. A description of these categories follows.

CICA TEC

CICA TEC operates and maintains certain common-use airline equipment, including baggage systems and loading bridges for the airlines serving the International Terminal. This corporation was formed by the foreign flag carriers that operate at the International Terminal together with United Airlines and American Airlines, which also operate international arriving flights at the International Terminal. Lease payments by CICA TEC to the City are considered Non-Airline Revenues.

City of Chicago



Table 5.3

Non-Signatory Airline Revenue and Non-Airline Revenue 1


Budget Projected

20052

2006 2007 2008 2009 2010 2011 2012 2013 2014

NON SIGNATORY AIRLINE REVENUE 3

$14,979 $16,636 $19,685 $22,171 $22,386 $23,191 $33,402 $33,758 $35,180 $36,096

NON-AIRLINE REVENUE

CICA TEC 4

$5,471 $5,426 $5,508 $5,590 $5,674 $5,759 $5,846 $5,933 $6,022 $6,113

Concessions

Automobile Parking - Net of Tax $92,911 $95,019 $100,024 $101,524 $106,044 $107,602 $112,100 $113,516 $118,102 $119,561

Automobile Rental 5

17,280 17,937 18,607 19,169 19,748 20,339 20,915 21,496 22,092 22,701

Restaurants 28,018 29,083 30,169 31,081 32,019 32,977 33,911 34,854 35,821 36,807

News & Gifts 9,233 9,593 9,960 10,273 10,595 10,923 11,245 11,571 11,906 12,248

Display Advertising 7,201 7,417 7,639 7,869 8,105 8,348 8,598 8,856 9,122 9,396

Hotel 6,716 6,971 7,232 7,450 7,675 7,905 8,129 8,355 8,586 8,823

Other 6

13,414 14,049 14,702 15,351 16,016 16,700 17,394 18,111 18,857 19,626

Concession Revenue $174,772 $180,070 $188,333 $192,717 $200,202 $204,793 $212,292 $216,760 $224,485 $229,161

Reimbursements & Other 7

10,435 9,357 9,421 9,486 9,553 9,622 9,693 9,766 9,841 9,918

TOTAL NON-AIRLINE REVENUE $190,678 $194,854 $203,262 $207,793 $215,429 $220,174 $227,830 $232,459 $240,348 $245,191

TOTAL NON-SIGNATORY AIRLINE & NON-AIRLINE REVENUE 8

$205,657 $211,490 $222,947 $229,964 $237,815 $243,365 $261,232 $266,217 $275,528 $281,287

1Excludes Land Support Area per the Airport Use Agreements.

2As of July 1, 2005.

3Includes landing fee revenue and terminal rental and use charge revenue from the Non-Signatory Airlines.

4In 2005, also includes Other Rentals.

5Includes percentage of gross receipts of six rental car companies operating under agreements at the Airport.

6Includes rentals and fees from other concessions such as bus service, public pay phones, other specialty shops and duty free.

7Includes CICA TEC Energy Reimbursement and Airport interest income.

8Totals may not add due to rounding.




City of Chicago



E-107

Concessions

Concession Revenues are projected to increase at a compounded annual growth rate of 3.1 percent from 2005 through 2014. Concession Revenues include those derived from the concessionaires in the terminal, such as restaurants and news and gift shops, and the Airport’s landside operations such as automobile parking, automobile rentals, and bus service. Concession Revenues were projected by applying growth rates to each type of concession, as follows:

Automobile Parking. Projected to increase by a combination of increases in number of O&D passengers and periodic rate increases.

Automobile Rentals. Projected to increase by a combination of increases in number of O&D passengers and inflation.

Restaurant. Projected to increase by a combination of increases in number of enplaned passengers and inflation.

News and Gifts. Projected to increase by a combination of increases in number of enplaned passengers and inflation.

Other Concessions

Bus Service. Projected to increase by a combination of increases in number of enplaned passengers and inflation.

Display Advertising. Projected to increase with inflation.

Duty Free. Projected to increase by a combination of increases in number of international enplaned passengers and inflation.

Hotel. Projected to increase by a combination of increases in number of enplaned passengers and inflation.

Miscellaneous. Projected to increase with inflation.

Retail Gift Shops. Projected to increase by a combination of increases in numbers of enplaned passengers and inflation.

Telecommunications. Projected to decrease 2.0 percent annually throughout the projection period.

Detailed descriptions of revenues generated by automobile parking, automobile rentals, restaurants, and news and gifts outlets, all of which account for approximately 86 percent of Concession Revenues in the Airport’s 2005 budget, follow:

Automobile Parking

The Airport has six public parking areas: a main parking garage (Lot A), two outside daily parking lots (Lots B and C), an international terminal parking lot (Lot D), and two economy lots (Lots E and G). The six-story main parking garage contains approximately 9,300 spaces for public and employee parking. Current surface parking capacity includes approximately 13,000 public parking spaces.

The City has a management agreement with Standard Parking Corporation, a provider of parking facility management services. Under the agreement, Standard Parking provides personnel to operate and maintain the parking facilities, provide cashier services, and ground transportation. This agreement commenced January 1, 2004 and expires December 31, 2012 (5-year contract with three 1-year extensions). The parking operator receives a fixed management fee adjusted annually by a pre-agreed upon contract rate and submits a daily, monthly, and annual accounting to the Department of Aviation. The parking rates were last adjusted on April 15, 2005 and were intended to help balance the effect of the parking tax increases implemented in the 2005 budget. The new rate structure decreased parking rates for the first hour and increased certain rates for two

City of Chicago



hours or more and daily parking rates. Budgeted parking revenues net of City tax for 2005 are $92.9 million or 54.4 percent of Concession Revenues.

Automobile Rental

As of June 2005, eight rental car companies operate “on Airport”. They include Alamo, Avis, Budget, Dollar, Enterprise, Hertz, National, and Thrifty. Vanguard Car Rental USA, Inc. operates Alamo and National, and Dollar Thrifty Auto Group operates Dollar and Thrifty. All rental car facilities are located at sites remote from the terminals and are served by shuttle buses. The on-Airport rental car companies operate on month-to-month agreements with the City and pay a fee to the City of 10 percent of gross revenues subject to a minimum annual guarantee based on the prior year’s gross revenues. These rental car companies are the source of all rental car revenues for the Airport; no revenue is derived from “off-Airport” rental car companies. Budgeted automobile rental revenues for 2005 are $17.3 million or 10.1 percent of Concession Revenues.

Restaurant

Concessionaires operate a total of 95 restaurants/food and beverage outlets at the domestic and international terminals at the Airport. The terms of their agreements generally range from 5 years to 10 years. The City receives from the concessionaires a percentage of gross sales against minimum annual guarantees that are adjusted annually based on the previous year’s sales. The budgeted restaurant revenues for 2005 are $28.0 million or 16.4 percent of Concession Revenues.

News and Gifts

Two concessionaires operate 28 news and gifts outlets in the domestic and international terminal at the Airport. In the domestic terminals, Hudson Group operates 24 news and gifts outlets under a 10-year agreement assigned from WH Smith in December 2003. In the international terminal, Chicago Aviation Partners operates four news and gift outlets. The City receives from the concessionaires a percentage of gross sales against minimum annual guarantees that are adjusted annually based on the previous year’s sales. The budgeted news and gifts revenues for 2005 are $9.2 million or 5.2 percent of Concession Revenues.

Reimbursements and Other

Reimbursements primarily relate to utilities. Many of the buildings on Airport property are separately metered for utilities; however, the Department of Aviation pays the utility companies directly. The Department of Aviation then bills each tenant for individual metered usage at regular scheduled rates that are no higher than the rates paid by the Department of Aviation itself. Other revenue items included in this line item are CICA TEC energy reimbursement (CICA TEC’s energy payments to the City) and interest income. Projections of these revenue items are not impacted by increases or decreases in aviation activity; increases are based on inflation. Other Non-Airline Revenues include interest income.

5.5 Debt Service

Table 5.4 presents the Airport’s Net Debt Service Requirements to be included in the calculation of Airport Fees and Charges for the forecast period. Such Net Debt Service Requirements are divided into the following categories:

Outstanding Bonds Debt Service:

Outstanding Debt Service on First Lien, Second Lien, and Third Lien GARBs that remain outstanding after issuance of Series 2005 Bonds.

Credit to Outstanding Debt Service ranging from approximately $5.1 million to $7.0 million annually to reflect a prior City commitment to the airlines to apply PFCs to debt service.

Debt Service of approximately $2.7 million annually on certain Special Facility Revenue Bonds required to be included in the rates and charges of the Airline Parties under the Airport Use Agreements.

City of Chicago



Table 5.4

Annual Net Debt Service Requirements 1


Refunding Bonds

Projected Savings 4

Future New Money

Debt Service 5

2005 $166,296 $0 $0 $0 $0 $166,296

2006 203,218 0 (490) 0 961 203,690

2007 315,401 0 (731) (54,067) 4,692 265,295

2008 268,675 9,801 (704) (7,813) 9,978 279,937

2009 225,798 14,526 (704) (7,955) 9,744 241,409

2010 229,354 13,996 (704) (21,909) 9,717 230,454

2011 229,622 66,941 (704) (27,589) 51,724 319,994

2012 246,432 61,969 (3,516) (29,914) 47,784 322,756

2013 245,224 61,969 (3,255) (18,682) 47,783 333,040

2014 249,596 61,969 (3,250) (19,711) 47,783 336,388

under the Airport Use Agreements for the purpose of calculating airlines fees, rentals, and charges. These include a charge for

debt service coverage, a credit for debt service coverage collected in the previous year, a credit for projected investment income

on debt service reserve funds, and an allowance for program fees on variable rate debt.

4 Preliminary, subject to change.

6 Totals may not add to due rounding.

Source (Outstanding Bonds Debt Service): Fullerton & Friar, Inc., October 6, 2005.

Source (All Other Debt Service and Savings): Citigroup, November 28, 2005.


approximately $58.4 million of capital improvement projects.

interest, including additional capitalized interest funded from the proceeds of the 2005 bonds. Adjustments

for military bond debt service are included.

2 Includes debt service on all outstanding First Lien GARBs reduced by $5 to $7 million per year to reflect a prior City

commitment to the airlines to apply PFCs toward such debt service; debt service on Second Lien GARBs that will remain

outstanding after the issuance of the Series 2005 Bonds; Third Lien GARBs; and certain Special Facility Revenue Bonds

5 Includes projected debt service on additional Third Lien GARBs required for implementation of OMP-Phase 1 and

required to be included in the Airline Parties' rates and charges under the Airport Use Agreements. Amounts are net of capitalized

3 Assumed interest rate of 4.97 percent. Amounts are net of capitalized interest.

1 All debt service in this table is shown only for the projection period. All amounts reflect certain adjustments required to be made

Outstanding Bonds

Debt Service 2Rates & Charges

Year

Total Projected Future

Debt Service 6

Series 2005 Bonds

Debt Service 3Future Refundings

Projected Savings

City of Chicago



E-110

Series 2005 Bonds Debt Service:

Includes estimated Debt Service, net of capitalized interest, on the Series 2005 Bonds with the following assumptions:

Interest rate: 4.97 percent

Interest capitalized through construction: Yes

Principal amortization period: 30 years

Series 2005 Refunding Bonds Projected Savings:

Includes savings from the Series 2005 Refunding Bonds with the following assumptions:

Interest rate: 4.97 percent

Principal amortization period: 30 years

Future Refunding Bonds Projected Savings:

Includes annual Debt Service savings projected from future refundings

Future New Money Debt Service:

Includes estimated Debt Service, net of capitalized interest, on the additional GARBs projected to be required to fund the remaining $599.9 million GARB-funded portion of OMP-Phase 1.

Includes estimated Debt Service, net of capitalized interest, on the additional GARBs projected to be required to fund the $58.4 million of additional MII-approved capital projects.

Excludes Debt Service on future PFC Double-Barreled Bonds to be issued to fund a portion of the costs of OMP-Phase 1, which the City intends to repay from PFCs.

Excludes Debt Service on future Airport Obligations for those 5-Year CIP projects, WGP projects, and OMP projects that have not received airline MII funding approval.

The amounts in each of these categories reflect certain adjustments required to be made to actual Debt Service under the Airport Use Agreements for the purpose of calculating of Airport Fees and Charges. Such adjustments include a charge for 10 percent Debt Service coverage, a credit for Debt Service coverage collected in the prior year, a credit for projected Investment Income on Debt Service Reserve Funds, an allowance for program fees on variable rate debt, and a credit for PFCs applied to GARB debt service.

5.6 Fund Deposit Requirements

One of the components of the Airport Fees and Charges paid by the Airline Parties and the International Terminal Airline Parties is annual required deposits into the O&M Reserve Fund, the Maintenance Reserve Fund, and the Special Capital Projects Fund. Table 5.5 presents the forecast required annual deposits to these funds.

5.7 Net Signatory Airline Requirement

Table 5.6 indicates the ability of the Airport enterprise to generate sufficient revenues to pay O&M Expenses, net Debt Service, and fund deposit requirements.

The projections of O&M Expenses, Non-Airline Revenues, and Non-Signatory Airline Revenues, including annual coverage requirements, are included in Table 5.6. The Net Signatory Airline Requirement constitutes the total amount that must be paid by the Airline Parties and the International Terminal Airline Parties under the Airport Use Agreements and the International Terminal Use Agreements, respectively, through Landing Fees, Terminal Area Rentals, Terminal Area Use Charges, and Fueling System Fees during the year.

City of Chicago



Table 5.5

Fund Deposit Requirements


Budget Projected

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Fund Deposit Requirements:

O&M Reserve Fund 4,980 4,751 4,980 6,908 6,888 5,974 10,861 6,864 7,229 7,614

Maintenance Reserve Fund 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000

Special Capital Projects Fund 395 407 419 432 445 458 472 486 500 515

Airport Development Fund 3,943 140 0 0 0 0 0 0 0 0

TOTAL FUND DEPOSIT REQUIREMENTS $12,318 $8,298 $8,399 $10,339 $10,333 $9,432 $14,332 $10,350 $10,730 $11,130

Total Fund Deposits by Cost/Revenue Center:

Airfield Area $4,964 $3,017 $3,033 $3,798 $3,889 $3,583 $5,662 $4,178 $4,328 $4,486

Terminal Area 2,699 2,594 2,672 3,252 3,200 2,905 4,291 3,054 3,168 3,288

International Terminal Area 700 677 697 848 834 757 1,117 795 824 855

Terminal Support Area 3,954 2,010 1,998 2,442 2,410 2,188 3,262 2,322 2,409 2,501

TOTAL FUND DEPOSIT REQUIREMENTS $12,318 $8,298 $8,399 $10,339 $10,333 $9,432 $14,332 $10,350 $10,730 $11,130




City of Chicago



E-112

Table 5.6

Net Signatory Airline Requirement 1


Budget Projected

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

O & M Expenses $352,669 $371,673 $391,594 $419,225 $446,779 $470,676 $514,118 $541,574 $570,491 $600,949

Net Debt Service 166,296 203,690 265,295 279,937 241,409 230,454 319,994 322,756 333,040 336,388

Fund Deposit Requirement 12,318 8,298 8,399 10,339 10,333 9,432 14,332 10,350 10,730 11,130

Total Expenses, Net Debt Service and Fund Deposits $531,283 $583,661 $665,289 $709,501 $698,520 $710,562 $848,444 $874,679 $914,261 $948,466

Less:

Non-Airline Revenue $190,678 $194,854 $203,262 $207,793 $215,429 $220,174 $227,830 $232,459 $240,348 $245,191

Non-Signatory Airline Revenue 14,979 16,636 19,685 22,171 22,386 23,191 33,402 33,758 35,180 36,096

Total Non-Airline and Non-Signatory Revenue $205,657 $211,490 $222,947 $229,964 $237,815 $243,365 $261,232 $266,217 $275,528 $281,287

NET SIGNATORY AIRLINE REQUIREMENT $325,626 $372,171 $442,342 $479,537 $460,705 $467,196 $587,212 $608,463 $638,733 $667,179

1Excludes Land Support Area.

Source: Ricondo & Associates, Inc.


City of Chicago



E-113

The Net Signatory Airline Requirement is projected to increase from $325.6 million in 2005 to $667.2 million in 2014.

5.8 Calculation of Airline Parties’ Airport Fees and Charges

Under the Airport Use Agreements and the International Terminal Use Agreements, the Airfield Area, the Terminal Area, the International Terminal Area, and the Fueling System each generate fees, rentals, or charges payable by the airlines that are signatory to such agreements. The Airport Fees and Charges presented in this section for 2005 through 2014 reflect the residual rate-making methodology in the Airport Use Agreements and the International Terminal Use Agreements.

Applicable Non-Airline Revenues (i.e., rentals, Concession Revenues, and reimbursements) are allocated to each CRC, as well as the following costs, to calculate applicable rates used to generate such fees, rentals, and charges:

O&M Expenses. Includes the O&M Expenses (direct and allocated indirect) attributable to the CRC.

Net Debt Service. Includes the portion of Debt Service and Debt Service coverage attributable to the CRC, net of Investment Income

Fund Deposit Requirements. Includes the allocated portions of the amounts required to be deposited to the funds described earlier.

Table 5.7 presents such fees, rentals, and charges for the projection period. The following sections describe the specific rate calculation in greater detail.

5.8.1 Airfield Area

Upon execution of an amendment by the City and the Signatory Airlines, the City intends to calculate the Landing Fees as follows. Landing Fees are calculated by first determining the Net Cost of the Airfield Area, which consists of portions of the following allocable to the Airfield Area: sum of O&M Expenses, Net Debt Service, fund deposit requirements, and net deficit of the International Terminal Area less the sum of projected Non-Airline Revenues and net revenues of the International Terminal Area. Beginning in rates and charges year 2006, the Net Cost of the Airfield Area will be allocated among Signatory and Non-Signatory Airlines on the basis of the approved maximum landed weight of all aircraft. Each Signatory Airline and Non-Signatory Airline will pay Landing Fees on the basis of the ratio of its total approved maximum landed weight to the total approved maximum landed weight of all Signatory Airlines and Non-Signatory Airlines. The landed weight of aircraft landed by certain classes on Non-Signatory Airlines may be increased by Non-Signatory Airline premium factors to be determined by the Commissioner of Aviation from time to time. As presented in Table 5.7, the Landing Fee Rate is projected to increase from a budgeted $2.76 per 1,000 pounds of landed weight in 2005 to $5.67 per 1,000 pounds of landed weight in 2014.

5.8.2 Terminal Area

The Airport Use Agreements establish a $5.00 per square foot Terminal Area Rental rate for space exclusively leased to the Airline Parties. O&M Expenses, Debt Service, and fund deposit requirements allocated to the Terminal Area are added together and offset by Non-Airline Revenues and Non-Signatory Airline Revenues attributable to the Terminal Area. A portion of the Terminal Support Area net deficit or net revenue is then allocated to the Terminal Area to yield the Terminal Area net deficit. The Terminal Area net deficit is paid by the Airline Parties in the form of Terminal Area Use Charges, which are calculated on a per square foot of exclusive use space leased basis. The projected average Terminal Area Use Charge is presented in Table 5.7. This charge is estimated at $64.80 per square foot in 2005, and is projected to increase to $112.88 per square foot in 2014.

City of Chicago



Table 5.7

Airline Fees, Rentals and Charges


Budget Projected

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Landing Fee Rate: 1

Signatory Airline $2.761 $3.093 $3.570 $3.882 $3.915 $3.943 $5.687 $5.585 $5.676 $5.672

Non-Signatory Airline $2.761 $3.093 $3.570 $3.882 $3.915 $3.943 $5.687 $5.585 $5.676 $5.672

Terminal Area:

Average Use Charge 2$64.80 $77.00 $91.24 $94.96 $79.86 $86.03 $88.75 $97.65 $104.05 $112.88

International Terminal Area:

Exclusive Use Rental Rate 2

Base Rental Rate $45.08 $48.55 $56.56 $60.35 $62.18 $44.93 $47.31 $49.95 $51.92 $55.12

Common Use Charge per Enplaned Passenger

Base Rate $5.84 $6.12 $6.75 $7.08 $7.24 $5.96 $6.19 $6.45 $6.66 $6.95

Common Use Charge per Deplaned Passenger

Base Rate $6.54 $6.86 $7.57 $7.94 $8.13 $6.68 $6.94 $7.23 $7.46 $7.79

Fueling System:

Average Cost Per Gallon (excluding fuel) $0.00521 $0.00885 $0.01416 $0.01318 $0.01207 $0.01197 $0.01122 $0.01067 $0.01142 $0.01119

1 Per thousand pounds.2 Per square foot.



City of Chicago



E-115

5.8.3 International Terminal Area

The International Terminal Use Agreements create sub-cost centers (the Exclusive Use Cost Center, the Enplaned Common Use Cost Center, and the Deplaned Common Use Cost Center) within the International Terminal Area. The International Terminal Airline Parties pay terminal rentals and common use charges based on their use of the International Terminal Area.

A portion of O&M Expenses, Debt Service on GARBs, and Non-Airline Revenues is allocated to the sub-cost centers, as appropriate, as well as a portion of the Terminal Support Area net deficit or net revenue, allocated to the International Terminal Area under the Airport Use Agreements. These sub-cost center expenses are generally allocated on the basis of the relative square footage of the respective sub-cost centers, yielding a net requirement for each sub-cost center.

The net requirement of the Exclusive Use Cost Center results in a base terminal rental rate according to leased square footage; the net requirement of the Enplaned Common Use Cost Center results in a base common use charge rate according to the number of International Terminal enplaned passengers; and the net requirement of the Deplaned Common Use Cost Center results in a base common use charge rate according to the number of International Terminal deplaned passengers.

As presented in Table 5.7, the base terminal rental rate is projected to increase from an estimated $45.08 per square foot in 2005 to $55.12 per square foot in 2014.

As presented in Table 5.7, the base common use charge rate per enplaned passenger is projected to increase from an estimated $5.84 per enplaned passenger in 2005, to $6.95 in 2014.

As presented in Table 5.7, the base common use charge rate per deplaned passenger is projected to increase from $6.54 in 2005, to $7.79 in 2014.

5.8.4 Fueling System

The net cost of the Fueling System consists of the portions of O&M Expenses and net Debt Service allocated to the Fueling System. Of this net cost, 10 percent is shared equally by all Airline Parties and International Terminal Airline Parties. The remaining 90 percent of the net cost is divided by the total gallons of fuel distributed from the Fueling System and charged to airlines based on the number of gallons used.

5.9 Airline Revenue

Table 5.8 presents the airline revenue resulting from the previously described fees, rentals, and charges. Consistent with the residual Airport Use Agreements and International Terminal Use Agreements, the Total Signatory Airline Revenue presented in Table 5.8 equals the Net Signatory Airline Requirement presented in Table 5.6.

5.10 Debt Service Coverage

Table 5.9 presents the Debt Service coverage ratio projected for 2005 through 2014. As shown, the Debt Service coverage ratio is projected to meet the minimum requirement of 1.10.

5.11 Airline Cost per Enplaned Passenger

A general test of reasonableness for Airport user fees is the airline cost per enplaned passenger. The airline cost per enplaned passenger is calculated by dividing the Total Airline Requirement by the number of enplaned passengers at the Airport. Table 5.10 presents the airline cost per enplaned passenger for the projection period, 2005 through 2014. The airline cost per enplaned passenger at the Airport is estimated to be $9.02 in current dollars in 2005 and projected to be $16.21 by the end of the projection period in 2014, which equates to

City of Chicago



Table 5.8

Airline Revenue


Budget Projected

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Landing Fee Revenue:

Signatory Airline 1

$148,267 $163,813 $193,222 $220,504 $228,539 $236,137 $349,009 $351,142 $365,575 $374,131

Non-Signatory Airline 13,382 14,785 17,440 19,902 20,627 21,313 31,501 31,693 32,996 33,768

TOTAL LANDING FEE REVENUE $161,649 $178,599 $210,662 $240,406 $249,166 $257,450 $380,510 $382,836 $398,571 $407,899

Terminal Area Rental and Use Charge Revenue:

Airline Parties $120,692 $143,424 $169,943 $176,876 $148,747 $160,235 $165,305 $181,890 $193,811 $210,241

Non-Signatory Airline 1,596 1,851 2,245 2,269 1,759 1,878 1,902 2,065 2,184 2,328

TOTAL TERMINAL RENTAL AND USE CHARGE REVENUE $122,288 $145,275 $172,188 $179,145 $150,506 $162,112 $167,206 $183,955 $195,996 $212,570

International Terminal Area Rental and Use Charge Revenue:

TOTAL INTERNATIONAL TERMINAL REVENUE $50,023 $53,529 $60,742 $64,628 $67,091 $54,371 $57,248 $60,318 $62,928 $66,483

Fueling System Fee Revenue:

Fixed Charges $664 $1,140 $1,843 $1,753 $1,633 $1,645 $1,565 $1,511 $1,642 $1,632

Variable Charges 5,980 10,264 16,591 15,777 14,695 14,808 14,085 13,601 14,777 14,691

TOTAL FUELING SYSTEM FEE REVENUE $6,644 $11,405 $18,434 $17,530 $16,328 $16,454 $15,650 $15,113 $16,419 $16,324

Total Airline Revenue $340,605 $388,807 $462,027 $501,708 $483,091 $490,387 $620,614 $642,221 $673,913 $703,275

Less: Non-Signatory Airline Revenue 14,979 16,636 19,685 22,171 22,386 23,191 33,402 33,758 35,180 36,096

TOTAL SIGNATORY AIRLINE REVENUE $325,626 $372,171 $442,342 $479,537 $460,705 $467,196 $587,212 $608,463 $638,733 $667,179

1 Includes airlines that are signatory to the Airport Use Agreements and/or International Terminal Use Agreements.



City of Chicago



E-117

Table 5.9

Debt Service Coverage


Budget Projected

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Signatory Landing Fee Revenue $148,267 $163,813 $193,222 $220,504 $228,539 $236,137 $349,009 $351,142 $365,575 $374,131

Terminal Area Rental and Use Charge Revenue 120,692 143,424 169,943 176,876 148,747 160,235 165,305 181,890 193,811 210,241

International Terminal Area Rental and Use Charge Revenue 50,023 53,529 60,742 64,628 67,091 54,371 57,248 60,318 62,928 66,483

Fueling System Fee Revenue 6,644 11,405 18,434 17,530 16,328 16,454 15,650 15,113 16,419 16,324

Non-Airline and Non-Signatory Airline Revenue 205,657 211,490 222,947 229,964 237,815 243,365 261,232 266,217 275,528 281,287

Investment Income from Debt Service Reserve Fund 11,187 11,202 9,541 11,402 11,720 11,273 14,165 13,975 14,334 14,335

Total Revenue $542,470 $594,863 $674,830 $720,904 $710,240 $721,835 $862,609 $888,654 $928,596 $962,801

Applied PFC Revenue 1

5,135 5,434 5,686 5,923 5,656 5,667 5,678 6,779 6,750 6,966

Total Revenue plus Applied PFC Revenue $547,605 $600,297 $680,516 $726,827 $715,896 $727,502 $868,286 $895,433 $935,346 $969,767

COVERAGE CALCULATION

Total Revenue plus Applied PFC Revenue $547,605 $600,297 $680,516 $726,827 $715,896 $727,502 $868,286 $895,433 $935,346 $969,767

Plus: Prior Period Debt Service Coverage 17,817 17,980 21,423 27,208 29,256 25,944 24,608 32,890 33,977 35,041

Adjusted Total Revenue $565,422 $618,278 $701,939 $754,035 $745,152 $753,446 $892,894 $928,323 $969,323 $1,004,808

Less:

O&M Expenses $352,669 $371,673 $391,594 $419,225 $446,779 $470,676 $514,118 $541,574 $570,491 $600,949

O&M Reserve Fund 4,980 4,751 4,980 6,908 6,888 5,974 10,861 6,864 7,229 7,614

Maintenance Reserve Fund 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000

Special Capital Projects Fund 395 407 419 432 445 458 472 486 500 515

Airport Development Fund 3,943 140 0 0 0 0 0 0 0 0

Net Revenue Available for Coverage $200,436 $238,307 $301,945 $324,470 $288,041 $273,339 $364,444 $376,399 $388,101 $392,729

Debt Service 2

$181,027 $208,416 $269,561 $290,135 $257,123 $243,868 $326,919 $337,976 $348,715 $355,148

GARB DEBT SERVICE COVERAGE 1.11 1.14 1.12 1.12 1.12 1.12 1.11 1.11 1.11 1.11

1 Non-pledged PFC revenue applied to existing outstanding debt service pursuant to a letter agreement with the airlines.

Interest rate of 5.0 percent assumed on variable rate issues.

Source (Budget 2005): City of Chicago.

Source (Debt Service): Fullerton & Friar, Inc., October 6, 2005, and Citigroup, November 28, 2005.

Source (Remaining Projections): Ricondo & Associates, Inc.


2 Net of capitalized interest. Actual and projected debt service. Does not include adjustments required for calculation of airline rates and charges, as described in Section 5.5 and on Table 5.4.

City of Chicago



E-118

Table 5.10

Airline Cost per Enplaned Passenger


Budget Projected

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Net Signatory Airline Requirement $325,626 $372,171 $442,342 $479,537 $460,705 $467,196 $587,212 $608,463 $638,733 $667,179

Non-Signatory Airline Requirement 14,979 16,636 19,685 22,171 22,386 23,191 33,402 33,758 35,180 36,096

Total Airline Requirement $340,605 $388,807 $462,027 $501,708 $483,091 $490,387 $620,614 $642,221 $673,913 $703,275

Total Projected Enplaned Passengers 37,765 38,622 39,472 40,064 40,663 41,260 41,802 42,330 42,860 43,390

Total Airline Cost per Enplaned Passenger

Current Dollars $9.02 $10.07 $11.71 $12.52 $11.88 $11.89 $14.85 $15.17 $15.72 $16.21

2005 Constant Dollars 1 $9.02 $9.77 $11.03 $11.46 $10.56 $10.25 $12.43 $12.34 $12.41 $12.42

1 Inflation rate assumed at 3 percent.



City of Chicago



E-119

approximately $12.42 in 2005 dollars. In summary, the airline cost per enplaned passenger throughout the projection period appears to be reasonable compared to those at other large-hub airports.

5.11.1 FAA Analysis

In addition to the analysis presented here, FAA has reviewed the feasibility of the Airport’s Master Plan, which includes OMP, and concluded the following in the FEIS:

FAA has no reason to believe that the resulting costs to airport users (most significantly, airlines serving O’Hare) will significantly adversely affect the ability to finance the capital projects and realize the projected aviation demand, particularly in the context of future investments that will be required at other large hub airports in the United States.2

5.12 Sensitivity Analysis

Given the uncertainties facing the aviation industry today, an alternative growth scenario is presented here, reflecting a reduction in the number of enplaned passengers if United and its regional commuter/partners, United Express, (collectively referred to as United in this sensitivity analysis) cease operations at the Airport. In 2004, United’s enplanements at the Airport consisted of approximately 40 percent originating passengers and 60 percent connecting passengers. For purposes of the sensitivity analysis, it was assumed that United would have continued to enplane the same passenger mix. While the sensitivity analysis is not based on specific air traffic recovery events, a number of events could take place that would mitigate the impact of the loss of United activity. These events include increased airline competition at the Airport for market share, increased activity by any existing carrier(s), and/or United Express carriers becoming regional commuter/partners with any existing carrier(s). The following definitions were used for the purposes of this sensitivity analysis:

The Base Projection refers to the 2006-2014 projection of enplaned passengers (including underlying projections of United’s O&D and connecting passengers), aircraft operations, and landed weight in Tables 3.13, 3.14, and 3.15, respectively.

The Sensitivity Projection refers to the 2006-2014 projections of enplaned passengers, aircraft operations, and landed weight reflecting the effects of United ceasing operations at the Airport.

An overview of the underlying assumptions and the resulting financial impacts of the sensitivity analysis scenario are presented below.

5.12.1 Assumptions

The following assumptions were used in developing the Sensitivity Projection:

Air Traffic

United ceases operations at the Airport on December 31, 2005.

The Sensitivity Projection assumes a 4-year recovery in the O&D passenger levels served by United with the following retained percentages of United’s O&D passengers from the Base Projection: 70 percent in 2006, 80 percent in 2007, 90 percent in 2008, and 100 percent by the end of 2009. Other airlines were assumed to absorb this displaced O&D passenger demand. It was assumed in the Sensitivity Projection that O&D passenger traffic would return to Base Projection numbers in 2009.

United’s current percentage of connecting passenger traffic versus O&D traffic is 60 percent.

Only 10 percent of United’s connecting passengers were assumed to connect through the Airport on other air carriers in 2006, gradually increasing each year through 2014 with full recovery of connecting passengers in 2014.

2 O’Hare Modernization Final Environmental Impact Statement dated July 2005, FAA, page ES-53.

City of Chicago



Total Airport enplaned passenger number recovers to 2005 levels in 2012.

The Sensitivity Projection for aircraft operations and landed weight was adjusted using the same methodology used to determine the relationships among enplaned passengers, aircraft operations, and landed weight in the Base Projection.

Financial

PFC revenue decreased in direct proportion to the decrease in enplaned passengers.

Certain Non-Airline Revenues are reduced. Automobile parking and automobile rental revenue is reduced in proportion to the number of O&D passengers. Restaurant and news & gifts revenues are reduced in proportion to the reduction in the total number of enplaned passengers.

Certain Terminal Area O&M Expenses for energy, materials and supplies, and repairs and maintenance—are reduced 8.0 percent in 2006, 2007, and 2008 and 4.0 percent in 2009, 2010, and 2011, and return to the Base Projection in 2012.

The scope and cost of OMP-Phase 1 remain the same if United ceases operations.

5.12.2 Financial Impacts

Table 5.11 presents the projected financial impacts of the sensitivity analysis. The number of enplaned passengers is projected to increase from an estimated 37.8 million in 2005 to 43.4 million in 2014, the Debt Service coverage requirement of 1.10 is met each year through 2014, and the airline cost per enplaned passenger increases from an estimated $9.02 in 2005 to a high of $17.13 in 2007 and 2011 and decreases to $16.21 in 2014, all in escalated dollars.

In summary, if a scenario similar to the one analyzed herein were to materialize at the Airport, the resultant airline cost per enplaned passenger appears reasonable compared to those at other large-hub airports.

5.13 Assumptions for Financial Projections

The techniques and methodologies used in preparing this report are consistent with industry practices for similar studies in connection with airport revenue bond sales. While R&A believes that the approach and assumptions used are reasonable, some assumptions regarding future trends and events detailed in this report including, but not limited to, implementation schedule and enplanement projections may not materialize. Achievement of the projections presented in this report, therefore, is dependent upon the occurrence of future events, which cannot be assured, and the variations may be material.

City of Chicago



Table 5.11

Airline Cost per Enplaned Passenger - Sensitivity Projection


Budget Projected

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Net Signatory Airline Requirement $325,626 $411,547 $476,215 $505,977 $481,216 $484,141 $601,045 $620,150 $646,623 $667,179

Non-Signatory Airline Requirement 14,979 16,927 19,946 22,378 22,549 23,321 33,511 33,851 35,237 36,096

Total Airline Requirement $340,605 $428,475 $496,161 $528,355 $503,765 $507,462 $634,557 $654,001 $681,860 $703,275

Total Projected Enplaned Passengers 37,765 26,493 28,959 31,309 33,717 35,394 37,053 38,727 40,431 43,390

Total Airline Cost Per Enplaned Passenger

Current Dollars $9.02 $16.17 $17.13 $16.88 $14.94 $14.34 $17.13 $16.89 $16.86 $16.21

2005 Constant Dollars 1 $9.02 $15.70 $16.15 $15.44 $13.27 $12.37 $14.34 $13.73 $13.31 $12.42

1 Inflation rate assumed at 3 percent.



City of Chicago



E-122

APPENDIX F

PROPOSED FORM OF OPINIONS OF CO-BOND COUNSEL

F-1

[Letterhead of Co-Bond Counsel]

[Closing Date]

City of Chicago City Hall Chicago, Illinois

We have examined a record of proceedings relating to the issuance of $200,000,000 aggregate principal amount of Chicago O’Hare International Airport General Airport Third Lien Revenue Bonds, Series 2005C (the “Series 2005C Bonds”) and $100,000,000 aggregate principal amount of Chicago O’Hare International Airport General Airport Third Lien Revenue Bonds, Series 2005D (the “Series 2005D Bonds” and, collectively with the Series 2005C Bonds, the “Bonds”), of the City of Chicago, a municipal corporation and a home rule unit of local government of the State of Illinois (the “City”). The Bonds are limited obligations of the City issued pursuant to the authority of Article VII, Section 6(a) of the Illinois Constitution of 1970 and by virtue of an ordinance adopted by the City Council of the City on March 31, 1983 and entitled “AN ORDINANCE AUTHORIZING THE ISSUANCE BY THE CITY OF CHICAGO OF ITS CHICAGO-O’HARE INTERNATIONAL AIRPORT GENERAL AIRPORT REVENUE BONDS, AND PROVIDING FOR THE PAYMENT OF AND SECURITY FOR SAID BONDS” (as supplemented, the “General Airport Revenue Bond Ordinance”) and an ordinance adopted by the City Council of the City on June 8, 2005 authorizing the Bonds (the “Bond Ordinance”). Terms used herein that are defined in the Indenture and the Supplemental Indentures (each as hereinafter defined) shall have the meanings set forth therein unless otherwise defined herein.

The Bonds are authorized by the City for the purpose of funding the cost of certain capital projects for the Airport, including the capital projects described on Exhibit A attached to the Bond Ordinance and any capital project included in the O’Hare Modernization Program, which capital projects constitute Airport Projects under the Indenture (the “Airport Projects”).

The Bonds are being issued pursuant to a Master Indenture of Trust Securing Chicago O’Hare International Airport Third Lien Obligations, dated as of March 1, 2002 (as amended, the “Indenture”), between the City and LaSalle Bank National Association, as trustee (the “Trustee”), and Nineteenth and Twenty-First Supplemental Indentures Securing Chicago O’Hare International Airport General Airport Third Lien Revenue Bonds, Series 2005C and Series 2005D, each dated as of December 1, 2005 (collectively, the “Supplemental Indentures”). The Bonds are Junior Lien Obligations of the City permitted to be issued under the General Airport Revenue Bond Ordinance and Third Lien Obligations authorized under the Indenture and are payable solely from and secured by pledges of Junior Lien Revenues and Third Lien Revenues as, and to the extent, provided in the Indenture and the Supplemental Indentures.

Under the terms of the General Airport Revenue Bond Ordinance and the Second Lien Indenture, the City has previously issued First Lien Bonds and Second Lien Bonds that are presently outstanding. The City may by supplemental ordinance hereafter authorize and issue additional First Lien Bonds for the purposes, and upon the terms and conditions, prescribed in the General Airport Revenue Bond Ordinance; the City has covenanted in the Indenture not to issue additional Second Lien Bonds under the Second Lien Master Indenture except as therein provided. First Lien Bonds are entitled to the benefit and security of the General Airport Revenue Bond Ordinance, including the pledge of Revenues and other funds maintained for the benefit of the First Lien Bonds by the First Lien Trustee, and Second Lien Bonds, and other Second Lien Obligations, are entitled to the benefit and security of the General Airport Revenue Bond Ordinance and the Second Lien Master Indenture, including the pledge of Revenues and other funds maintained for the benefit of the Second Lien Bonds and other Second Lien Obligations by the Second

F-2

Lien Trustee. The Bonds and all other Third Lien Obligations are junior in right of payment and security to the First Lien Bonds and the Second Lien Obligations as and to the extent provided in the General Airport Revenue Bond Ordinance, the Bond Ordinance, the Second Lien Master Indenture, the Indenture and the Supplemental Indentures.

The Series 2005C Bonds are dated the date of issuance, are issuable as fully registered bonds in denominations of $100,000 and any integral multiple of $5,000 in excess thereof, mature on January 1, 2035 in the principal amount of $200,000,000*, and bear interest at a variable or fixed rate determined from time to time in accordance with the provisions of the Supplemental Indentures. The Series 2005D Bonds are dated the date of issuance, are issuable as fully registered bonds in denominations of $100,000 and any integral multiple of $5,000 in excess thereof, mature on January 1, 2035 in the principal amount of $100,000,000*, and bear interest at a variable or fixed rate determined from time to time in accordance with the provisions of the Supplemental Indentures. The Supplemental Indentures contain provisions which permit conversion (“Conversion”) of the method by which interest on the Bonds is determined. In such event, the Bonds are subject to mandatory tender by the registered owners thereof.

The Bonds are subject to redemption prior to maturity at the times, in the manner and upon the terms and conditions set forth in the Supplemental Indentures.

In connection with the issuance of the Bonds we have examined the following:

(a) the Constitution of the State of Illinois and such laws as we deemed pertinent to this opinion;

(b) certified copies of the General Airport Revenue Bond Ordinance, the Second Lien Master Indenture, the Indenture and the Bond Ordinance;

(c) executed counterparts of the Supplemental Indentures; and

(d) such other documents, showings and related matters of law as we have deemed necessary in order to render this opinion.

Based upon our examination of the foregoing, we are of the opinion that:

(a) The City is a municipal corporation duly existing under the laws of the State of Illinois and is a home rule unit of local government within the meaning of Section 6(a) of Article VII of the 1970 Illinois Constitution. The City has all requisite power and authority under the Constitution and the laws of the State of Illinois, the General Airport Revenue Bond Ordinance and the Bond Ordinance (i) to enter into the Indenture and the Supplemental Indentures with the Trustee and to issue the Bonds thereunder, and (ii) to improve, maintain and operate the Airport and to charge and collect rents, fees and other charges for the use and services of the Airport and to perform all of its obligations under the General Airport Revenue Bond Ordinance, the Indenture and the Supplemental Indentures in those respects.

(b) The Bond Ordinance is in full force and effect, and is valid and binding upon the City in accordance with its terms.

(c) The Indenture and the Supplemental Indentures have been duly authorized, executed and delivered by the City, constitute valid and binding obligations of the City and are legally enforceable in accordance with their terms.

F-3

(d) The Bonds have been duly authorized and issued, are the legal, valid and binding limited obligations of the City, are entitled to the benefits and security of the Indenture and the Supplemental Indentures and are enforceable in accordance with their terms.

(e) The Series 2005C Bonds are payable solely from the Third Lien Revenues deposited in the 2005C Dedicated Sub-Fund maintained by the Trustee under the Nineteenth Supplemental Indenture, and certain other amounts as provided in the Indenture and the Supplemental Indentures. The Series 2005D Bonds are payable solely from the Third Lien Revenues deposited in the 2005D Dedicated Sub-Fund maintained by the Trustee under the Twenty-First Supplemental Indenture, and certain other amounts as provided in the Indenture and the Supplemental Indentures. The Bonds and the interest thereon are limited obligations of the City and do not constitute an indebtedness of the City within the meaning of any state constitutional provision or statutory limitation or give rise to a charge against its general credit or taxing powers. Neither the faith and credit nor the taxing power of the State of Illinois, the City or any political subdivision of the State of Illinois is pledged to the payment of the principal of or interest on the Bonds.

(f) The Indenture and the Supplemental Indentures create the valid and binding assignments and pledges which they purport to create of the amounts assigned and pledged to the Trustee under the Indenture and the Supplemental Indentures.

(g) We are of the opinion that, under existing law, interest on the Bonds is not includible in the gross income of the owners thereof for federal income tax purposes. If there is continuing compliance with the requirements of the Internal Revenue Code of 1986 (the “Code”), we are of the opinion that interest on the Bonds will continue to be excluded from the gross income of the owners thereof for federal income tax purposes. Interest on the Bonds is not an item of tax preference for purposes of computing individual or corporate alternative minimum taxable income, but must be taken into account as earnings and profits of a corporation when computing, for example, corporate alternative minimum taxable income for purposes of the corporate alternative minimum tax. Interest on the Bonds is not exempt from present Illinois income taxes.

The Code contains certain requirements that must be satisfied from and after the date hereof in order to preserve the exemption from federal income taxes of interest on the Bonds. These requirements relate to the use and investment of the proceeds of the Bonds, the payment of certain amounts to the United States, the security and source of payment of the Bonds and the use and tax ownership of the property financed with the proceeds of the Prior Bonds or the Bonds. The City has covenanted in the Bond Ordinance, the Indenture and the Supplemental Indentures to comply with these requirements.

In rendering the foregoing opinion, we advise you that the enforceability (but not the validity or binding effect) of the Bonds, the Indenture and the Supplemental Indentures (a) may be limited by any applicable bankruptcy, insolvency or other laws affecting the rights or remedies of creditors now or hereafter in effect, and (b) is subject to principles of equity in the event that equitable remedies are sought, either in an action at law or in equity.

This opinion is based on law and facts in existence on the date hereof, and we assume no obligation to advise you of changes that may hereafter be brought to our attention. In certain circumstances, prior to the giving by the Trustee of notice of Conversion with respect to the Bonds, the Supplemental Indentures require there to be filed with the Trustee, among other things, an opinion of bond counsel to the effect that the Conversion of the Bonds is lawful under applicable law and permitted by the Indenture, and that the Conversion does not have a material adverse effect on the tax status of the interest on the Bonds for federal income tax purposes; no opinion is expressed herein with respect to the effect of any Conversion. Payment of principal of, and interest on, the Series 2005C Bonds are initially

F-4

secured by a municipal bond insurance policy issued by CIFG Assurance North America, Inc., and payment of the purchase price of tendered Series 2005C Bonds is initially secured by a standby bond purchase agreement between the City and DEPFA BANK plc, acting through its New York Branch. Payment of principal of, and interest on, the Series 2005D Bonds are initially secured by a municipal bond insurance policy issued by CIFG Assurance North America, Inc., and payment of the purchase price of tendered Series 2005D Bonds is initially secured by a standby bond purchase agreement between the City and Dexia Credit Local, acting through its New York Branch. We express no opinion herein with respect to the validity or enforceability of such municipal bond insurance policies or standby bond purchase agreements.

Respectfully yours,

APPENDIX G

SPECIMEN BOND INSURANCE POLICY

CIFG NA Endorse-1 (8-04)

ENDORSEMENT NO. 1 TO FINANCIAL GUARANTY INSURANCE POLICY NO. CIFG NA-720

CIFG ASSURANCE NORTH AMERICA, INC.

1. Definitions. For all purposes of this Policy, the terms specified below shall have the meanings or constructions provided below. Capitalized terms used without definition herein shall have the meanings provided in the documents governing the Obligations unless the context shall otherwise require.

“Business Day” means any day (other than a Saturday or Sunday) that in the City of New York is neither a legal holiday nor a day on which banking institutions are authorized or obligated by law or executive order to be closed.

“CIFG NA” means CIFG Assurance North America, Inc. and its successors and permitted assigns.

“Policy” means this Financial Guaranty Insurance Policy and includes each endorsement thereto.

“Receipt” and “Received” mean actual delivery to each of CIFG NA and the Fiscal Agent (as defined below), if any, prior to 12:00 noon, New York City time, on a Business Day; delivery either on a day that is not a Business Day, or after 12:00 noon, New York City time, shall be deemed to be Receipt on the next succeeding Business Day. If any notice or certificate given hereunder by the Policyholder is not in proper form or is not properly completed, executed or delivered in all material respects, it shall be deemed not to have been Received, and CIFG NA or its Fiscal Agent shall promptly so advise the Policyholder and the Policyholder may submit an amended notice.

“Regular Payment Date” means (i), when referring to interest on an Obligation, the stated date for payment of interest and (ii), when referring to the principal of an Obligation, the stated final maturity date thereof or the date on which the same shall have been duly called for mandatory redemption (by sinking fund or otherwise) and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by such mandatory redemption), acceleration or other advancement of maturity unless CIFG NA shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration.

“Regular Payments” means any and all regularly scheduled payments of principal of and interest on the Obligations required to be made in accordance with their original terms and without regard to any subsequent amendment or modification thereof except amendments or modifications to which CIFG NA has given its prior written consent. Regular Payments shall not include, nor shall coverage be provided under this Policy in respect of: (1) payments which become due on an accelerated basis as a result of (a) a default by the Issuer or any other person,

G-2

Policy Number CIFG NA-720 Effective Date: December 22, 2005

(b) an election by the Issuer to make payment on an accelerated basis, or (c) any other cause, unless CIFG NA shall elect, in its sole discretion, to pay any amount due upon such acceleration together with any accrued interest to the date of acceleration; (2) any amounts due in respect of the Obligations attributable to any increase in interest rate, penalty or other sum payable by the Issuer by reason of any default or event of default in respect of the Obligations, whether by the Issuer or any other person, or by reason of any deterioration of the creditworthiness of the Issuer or any other person, or (3) any taxes, withholding or other charge imposed by any governmental authority due in connection with the payment of any Regular Payment to the Policyholder.

“Term of this Policy” means the period from and including the Effective Date to and including the date on which (i) all Regular Payments have been paid and the Obligations have been terminated in accordance with their terms; (ii) any period during which any Regular Payment could have been avoided in whole or in part as a preference payment under applicable bankruptcy, insolvency, receivership or similar law shall have expired; and (iii) if any proceedings requisite to avoidance as a preference payment have been commenced prior to the occurrence of (i) and (ii), a final and nonappealable order in resolution of each such proceeding has been entered.

2. Notices and Conditions to Payment in Respect of Regular Payments. Following Receipt by CIFG NA of a notice of claim and certificate from the Policyholder in the form attached as Exhibit A to this Endorsement (a “Notice of Claim and Certificate”), CIFG NA will pay any amount payable hereunder in respect of Regular Payments on the Obligations on (i) in respect of the first Regular Payment Date after Receipt by CIFG NA of such Notice of Claim and Certificate, the later to occur of (a) 10:00 a.m., New York City time, on the Business Day following such Receipt and (b) 10:00 a.m., New York City time, on the Regular Payment Date on which such payment is due on the Obligations and (ii) in respect of each subsequent Regular Payment Date after Receipt by CIFG NA of such Notice of Claim and Certificate, 10:00 a.m., New York City time, on the Regular Payment Date on which such payment is due on the Obligations. Payments due hereunder in respect of Regular Payments will be disbursed to the Policyholder by wire transfer of immediately available funds to such account as the Policyholder shall specify in writing at the time of or prior to the delivery of the Notice of Claim and Certificate in respect of such Regular Payment.

CIFG NA shall be entitled to pay any amount hereunder in respect of Regular Payments on the Obligations, including any amount payable upon its election on the Obligations on an accelerated basis, whether or not any notice and certificate shall have been Received by CIFG NA as provided above; provided, however, that by acceptance of this Policy the Policyholder agrees to provide upon request to CIFG NA a Notice of Claim and Certificate in respect of any such payments or deliveries made by CIFG NA. CIFG NA’s obligation hereunder in respect of Regular Payments shall be discharged to the extent funds are disbursed by CIFG NA as provided herein whether or not such funds are properly applied by any custodian or agent appointed by the Policyholder.

3. Notices and Conditions to Payment in Respect of Regular Payments Avoided as Preference Payments. If any Regular Payment paid in respect of the Obligations during the Term

G-3


of this Policy is avoided as a preferential transfer or similar payment (a “Preference Payment”) under applicable bankruptcy, insolvency, receivership or similar law (“Insolvency Law”), CIFG NA will pay such amount out of the funds of CIFG NA on the later of (a) the date when due to be paid pursuant to the Order referred to below or (b) the first to occur of (i) the fourth Business Day following Receipt by CIFG NA from the Policyholder of (A) a certified copy of the order (the “Order”) of the court or other governmental body of competent jurisdiction to the effect that the Policyholder is required to return all or part of such Regular Payment because such payment was avoidable as a Preference Payment under applicable Insolvency Law, (B) a certificate of the Policyholder that the Order has been entered and is not subject to any stay and (C) an assignment duly executed and delivered by the Policyholder in such form as is reasonably required by CIFG NA, and provided to the Policyholder by CIFG NA, irrevocably assigning to CIFG NA all rights and claims of the Policyholder relating to or arising under the Obligations against the Issuer or its estate or otherwise with respect to such Preference Payment or (ii) the date of Receipt by CIFG NA from the Policyholder of the items referred to in clauses (A), (B) and (C) above if, at least four Business Days prior to such date of Receipt, CIFG NA shall have Received written notice from the Policyholder that such items were to be delivered on such date and such date was specified in such notice. Such payment shall be disbursed to the receiver, conservator, debtor-in-possession or trustee in bankruptcy named in the Order, and not the Policyholder directly (unless the Policyholder has previously paid such amount to the receiver, conservator, debtor-in-possession or trustee in bankruptcy named in the Order, in which case such payment shall be disbursed to the Policyholder upon proof of such payment reasonably satisfactory to CIFG NA).

4. Fiscal Agent. At any time during the Term of this Policy, CIFG NA may appoint a fiscal agent (the “Fiscal Agent”) for purposes of this Policy by written notice to the Policyholder at the notice address specified in the documents governing the Obligations specifying the name and notice address of the Fiscal Agent. From and after the date of receipt of such notice by the Policyholder, (i) copies of all notices and documents required to be delivered to CIFG NA pursuant to this Policy shall be simultaneously delivered to the Fiscal Agent and CIFG NA and shall not be deemed Received until Received by each, and (ii) all payments required to be made by CIFG NA under this Policy may be made directly by CIFG NA or by the Fiscal Agent on behalf of CIFG NA. The Fiscal Agent is the agent of CIFG NA only and the Fiscal Agent shall in no event be liable to any Policyholder for any acts of the Fiscal Agent or any failure of CIFG NA to deposit, or cause to be deposited, sufficient funds to make payments due under the Policy.

5. Notices. All notices to be given hereunder shall be in writing (except as otherwise specifically provided herein) and shall be mailed by registered mail or personally delivered or telecopied to CIFG NA as follows:

CIFG Assurance North America, Inc. 825 Third Avenue, Sixth Floor New York, New York 10022 Attention: General Counsel Telecopy No.: (212) 909-3959

G-4


CIFG NA may specify a different address or addresses by writing mailed or delivered to the Policyholder.

6. Priorities. In the event that any term or provision of the face of this Policy is inconsistent with the provisions of this Endorsement, the provisions of this Endorsement shall take precedence and shall be binding.

7. Assignment of CIFG NA Obligations. The obligations of CIFG NA hereunder may be assigned to any affiliate of CIFG NA that is licensed as a financial guaranty insurance corporation, provided that at the time of such assignment the insurance strength or insurance financial strength of such affiliate is rated at least equal to the insurance strength or insurance financial strength of CIFG NA, and that the rating of the Obligations shall not have been reduced as a result of such assignment, by Moody’s Investors Service, Fitch, Inc. and Standard & Poor’s Ratings Group or their respective successors as nationally recognized statistical rating organizations.

8. Surrender of Policy. The Policyholder shall surrender this Policy to CIFG NA for cancellation upon expiration of the Term of this Policy.

IN WITNESS WHEREOF, CIFG ASSURANCE NORTH AMERICA, INC. has caused this Endorsement No. 1 to be executed by its Authorized Officer.


By ____ ____________________________________ Authorized Officer

G-5

Exhibit A

To Endorsement No. 1

NOTICE OF CLAIM AND CERTIFICATE

CIFG Assurance North America, Inc. 825 Third Avenue, Sixth Floor New York, NY 10022

The undersigned, a duly authorized officer of [Policyholder] (or any permitted successor or assignee of its rights under the Obligations defined below) (the “Policyholder”), hereby certifies to CIFG Assurance North America, Inc. (“CIFG NA”), with reference to Financial Guaranty Insurance Policy No. CIFG NA-720 having an Effective Date of December 22, 2005 (the “Policy”) issued by CIFG NA in respect of the Obligations (capitalized terms used without definition herein having the meanings provided in the Policy unless the context shall otherwise require), that:

(i) The Policyholder is the Policyholder under the Policy.

(ii) [The Policyholder has not been timely advised in writing by the Issuer as to a source of funds reasonably satisfactory to the Policyholder sufficient to make payment in full of a Regular Payment required to be made on the immediately following Regular Payment Date] [The Regular Payment required to be made on the Regular Payment Date falling on [date] has not been paid in full]. The Regular Payment has been calculated as follows: [show calculation].

(iii) Accordingly, the Policyholder is hereby making a claim under the Policy for the amount of the foregoing Regular Payment and, when due, any subsequent Regular Payments. The Policyholder will withdraw this Notice of Claim and Certificate, or submit a restated Notice of Claim and Certificate reducing the amount of the claim hereunder, if the required amount of any Regular Payment has been reduced (including reduction to zero) on or prior to any date on which CIFG NA is required to make payment or delivery under the Policy.

(iv) If the Policyholder receives from the Issuer and CIFG NA an amount in excess of a Regular Payment, the Policyholder shall immediately return the excess amount to CIFG NA.

(v) In consideration of the payments made and to be made to the Policyholder by CIFG NA under the Policy, the Policyholder hereby assigns to CIFG NA all of its interest in and rights with respect to the Obligations (including the documents governing the Obligations). The foregoing assignment is in addition to, and not in limitation of, rights of subrogation otherwise available to CIFG NA in respect of such payments. Payments to CIFG NA in respect of the foregoing assignment

G-6

shall in all cases be subject to and subordinate to the rights of the Policyholder to receive all Regular Payments in respect of the aforementioned Obligations. The Policyholder shall take such action and deliver such instruments as may be reasonably requested or required by CIFG NA to effectuate the purpose or provisions of this clause (v).

(vi) The Policyholder hereby agrees that, so long as no CIFG NA Termination Event (as defined below) shall have occurred and be continuing, CIFG NA may at any time during the continuation of any proceeding by or against the Issuer under any applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an “Insolvency Proceeding”) direct all matters relating to such Insolvency Proceeding, including without limitation, (A) all matters relating to such Insolvency Proceeding seeking the avoidance as a preferential transfer of any payment made with respect to the Obligations (a “Preference Claim”), (B) the direction of any appeal of any order relating to any Preference Claim at the expense of CIFG NA and (C) the posting of any surety, supersedeas or performance bond pending any such appeal. In addition, so long as no CIFG Termination Event shall have occurred and be continuing, the Policyholder hereby agrees that CIFG NA shall be subrogated to, and the Policyholder hereby assigns, to the fullest extent permitted by law, the rights of the Policyholder in the conduct of any Insolvency Proceeding, including, without limitation, all rights of any party to an adversary proceeding or action with respect to any court order issued in connection with any such Insolvency Proceeding. A “CIFG NA Termination Event” shall be any event of default specified in the documents governing the Obligations with respect to CIFG NA as insurer of the Obligations or, if none is so specified, either: (i) CIFG NA’s failure to make a payment required under the Policy in accordance with its terms or (ii) its institution of a proceeding seeking a judgment of insolvency or bankruptcy; the institution against it of such a proceeding or petition that is not dismissed, discharged or stayed within 180 days of the institution of such a proceeding or petition; or the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all of its assets.

(vii) Payment should be made by wire transfer directed to the following account in [city]:

[Policyholder’s wire transfer information]

G-7

IN WITNESS WHEREOF, the Policyholder has executed and delivered this Notice of Claim and Certificate as of the _____________ day of ______________, ______________.

[POLICYHOLDER]

By_________________________

Title________________________

---------------------------------------------------------------------------------------------------------------------

For CIFG NA or Fiscal Agent Use Only

Wire transfer sent on _____________________ by _____________________

Confirmation Number ____________________

G-8

CIFGNA Fraud Endorse-2 (8-04)



Notwithstanding the terms and provisions contained in this Policy, it is further understood that any person who, with intent to defraud or knowing that he is facilitating a fraud against an insurer, submits an application or files a claim containing a false or deceptive statement is guilty of insurance fraud.



By ________________________________________ Authorized Officer

G-9

CIFGNA Bonds Endorse-3-NY (8-04)



THIS POLICY IS NOT COVERED BY THE ILLINOIS INSURANCE GUARANTY FUND SPECIFIED IN 215 ILCS 5/533.



By ____ ____________________________________ Authorized Officer

G-10

CIFGNA Bonds Endorse-4-VRDN (8-04)



“Regular Payments” as defined in Endorsement No. 1 to the Policy shall also include any and all regularly scheduled payments of principal of and interest on the Obligations required to be made in accordance with Sections 2.2(a) and 3.1 of the Standby Bond Purchase Agreement entered into in connection with the Obligations (without regard to any subsequent amendment or modification thereof except amendments or modifications to which CIFGNA has given its prior written consent), including amounts payable in respect of overdue Regular Payments pursuant to of such Standby Bond Purchase Agreement, but only to the extent CIFGNA shall not have made timely payment of such Regular Payments under this Policy. Except as expressly provided in the preceding sentence, Regular Payments shall not include, nor shall coverage be provided under this Policy in respect of: (1) payments which become due on an accelerated basis as a result of (a) a default by the Issuer or any other person except CIFGNA, (b) an election by the Issuer to make payment on an accelerated basis, (c) early or rapid amortization of the Obligations, or (d) any other cause, unless CIFGNA shall elect, in its sole discretion, to pay any amount due upon such acceleration together with any accrued interest to the date of acceleration; (2) any amounts due in respect of the Obligations attributable to any increase in interest rate, penalty or other sum payable by the Issuer by reason of any default or event of default in respect of the Obligations, whether by the Issuer or any other person except CIFGNA, or by reason of any deterioration of the creditworthiness of the Issuer or any other person except CIFGNA, or (3) any taxes, withholding or other charge imposed by any governmental authority due in connection with the payment of any Regular Payment to the Policyholder.



By _________________________________________ Authorized Officer

G-11

APPENDIX H

THE SERIES 2005C LIQUIDITY FACILITY PROVIDER

H-1

The following information regarding DEPFA BANK plc was provided by DEPFA and has not been verified by the City or the Underwriters.

DEPFA BANK plc (“DEPFA”) is the parent company of the DEPFA BANK plc group of companies comprising DEPFA and its consolidated subsidiaries (the “Group”). DEPFA will act through its New York Branch, which is licensed by the Banking Department of the State of New York as an unincorporated branch of DEPFA BANK plc, Dublin. DEPFA is based in Dublin and has a banking license issued under the Irish Central Bank Act, 1971 (as amended) and is supervised by the Financial Regulator. It is registered in the Irish companies Registration Office with company number 348819 and its shares are listed on the Frankfurt Stock Exchange. DEPFA has a network of subsidiaries, branches and offices across many European countries, as well as in North America and Asia.

The Group provides a broad range of products and services to public sector entities, from governmental budget financing and financing of infrastructure projects to placing of public sector assets and investment banking and other advisory services. The Group has direct client contacts with many state entities and focuses on those public sector entities involved in large volume business. The Group advises individual public sector borrowers on their international capital market transactions and preparations for the ratings process.

As of December 31, 2004, DEPFA had total consolidated assets of Euro 190.4 billion, shareholders' equity of Euro 1.9 billion and consolidated net income of Euro 540 million, determined in accordance with the United States generally accepted accounting principles. DEPFA maintains its records and prepares its financial statements in Euro. At December 31, 2004, the exchange rate was 1.0000 Euro equals 1.3621 United States dollars. Such exchange rate fluctuates from time to time.

DEPFA is rated “Aa3” long-term and “P-1” short-term by Moody's, “AA–” long-term and “A-1+” short-term by S&P, and “AA–” long-term and “F1+” short-term by Fitch. On April 18, 2005, Fitch confirmed DEPFA’s long-term and short-term rating. On November 25, 2005, S&P confirmed DEPFA’s long-term and short-term rating. On December 2, 2005, the long-term ratings of DEPFA were placed on Watch List for review for possible downgrade by Moody’s, although DEPFA’s short-term ratings have not been affected.

DEPFA will provide without charge a copy of its most recent publicly available annual report. Written requests should be directed to: DEPFA BANK plc, New York Branch, 623 Fifth Avenue, 22nd Floor, New York, New York 10022, Attention: General Manager. The delivery of this information shall not create any implication that the information contained or referred to herein is correct as of any time subsequent to its date. In addition, updated financial information may be found from the DEPFA website at: www.depfa.com.

APPENDIX I

THE SERIES 2005D LIQUIDITY FACILITY PROVIDER

I-1

The following information regarding Dexia Credit Local S.A. was provided by Dexia and has not been verified by the City or the Underwriters.

Dexia Credit Local (“Dexia”) is a subsidiary of the Dexia Group, which was created in 1996. The Dexia Group is a major European banking organization that is the product of several cross-border mergers. Dexia is an authentically European bank in terms of both its management organization and the scope of its different lines of business. The Dexia Group is listed on the Brussels, Paris and Luxembourg stock exchanges. With a stock market capitalization of over 19 billion euros as of December 31, 2004, the Dexia Group ranks in the top third of the Euronext 100 companies.

Dexia specializes in the Dexia Group’s first line of business – public and project finance and financial services for the public sector. Dexia has recognized expertise in local public sector financing and project finance. It is backed by a network of specialized banks, which employ over 3,000 professionals. Through this network of subsidiaries, affiliates and branches, Dexia is present in almost all of the countries of the European Union as well as Central Europe, the United States of America and Canada. Dexia also has operations in Latin America, the Asian-Pacific Region including Australia, and the countries around the Mediterranean.

Dexia is a bank with its principal office located in Paris, France. In issuing the facility, Dexia will act through its New York Branch, which is licensed by the Banking Department of the State of New York as an unincorporated branch of Dexia Credit Local, Paris. Dexia is the leading local authority lender in Europe, funding its lending activities in 2004 primarily through the issuance of euro and U.S. dollar-denominated bonds. In 2004, total funding raised by Dexia and Dexia Municipal Agency was 11.7 billion euros.

The Dexia Group is the owner of Financial Security Assurance Holdings Ltd., the holding company for Financial Security Assurance Inc., a leading financial guaranty insurer.

As of December 31, 2004, Dexia had total consolidated assets of 206.0 billion euros, outstanding medium and long-term loans to customers of 168.13 billion euros and shareholders’ equity of over 4.32 billion euros (Tier I plus Tier II), and for the year then ended had consolidated net income of 705 million euros. These figures were determined in accordance with generally accepted accounting principles in France. Dexia maintains its records and prepares its financial statements in euros. At December 31, 2004, the exchange rate was 1.0000 euro equals 1.3621 United States dollar. Such exchange rate fluctuates from time to time.

Dexia is rated Aa2 long-term and P-1 short-term by Moody’s, AA long-term and A-1+ short-term by S&P, and AA+ long-term and F1+ short-term by Fitch.

Dexia will provide without charge a copy of its most recent publicly available annual report. Written requests should be directed to: Dexia Credit Local, New York Branch, 445 Park Avenue, 7th Floor, New York, New York 10022, Attention: General Manager. The delivery of this information shall not create any implication that the information contained or referred to herein is correct as of any time subsequent to its date.

Recycled Paper - Printed byIMAGEMASTER 800.452.5152

Cit

y of C

hiC

ag

o • Ch

iCa

go o

’ha

re i

nt

er

na

tio

na

l air

po

rt

ge

ne

ra

l air

po

rt t

hir

d lie

n re

ve

nu

e Bo

nd

s se

rie

s 2005C • g

en

er

al a

irp

or

t th

ird l

ien r

ev

en

ue B

on

ds s

er

ies 2005d

NEW ISSUE – BOOK-ENTRY ONLY RATINGS: SEE “RATINGS ......NEW ISSUE – BOOK-ENTRY ONLY RATINGS:...

Documents

Transcript of NEW ISSUE – BOOK-ENTRY ONLY RATINGS: SEE “RATINGS ......NEW ISSUE – BOOK-ENTRY ONLY RATINGS:...