UPDATED 03/14/11 6:00 p.m.

CHICAGO (CBS) — An agreement has been reached in the long-running dispute between the city of Chicago and two major airlines over the O’Hare expansion project.

The deal to break the stalemate over funding and other issues was negotiated by U.S. Sen. Dick Durbin (D-Ill.), Mayor Richard M. Daley, Transportation Secretary Ray LaHood and U.S. Sen. Mark Kirk (R-Ill.).

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Under the arrangement, American and United Airlines have agreed to drop a lawsuit blocking expansion plans, clearing the way for construction of a new southern runway.

“Do we need this runway today? Of course not,” United Airlines CEO Jeffery Smisek said at a news conference to announce the deal. “But we do believe that with time we will, and we are willing to help fund our portion.”

In exchange, other major expansion plans would be put on hold — and subject to negotiation after 2013.

To make room for the new runway, remains from the St. Johannes cemetery have been moved and homes in suburban Bensenville bulldozed.

The total cost for this part of the expansion plan, which also will include a few other smaller improvements, will cost $1 billion. LaHood said the federal government agreed to kick in an additional $150 million for the project on top of the nearly $1 billion in committed federal money.

“We decided on the runway that we felt was most important.” LaHood said. “We put some more money on the table.”

Mayor-elect Rahm Emanuel issued a statement in support of the agreement Monday morning.

“Today’s agreement is a victory for the economic future of our city, our state, and our region. By allowing the modernization of O’Hare International Airport to move forward, the agreement will create new jobs in the short term and help secure Chicago’s economic competitiveness in the long term,” Emanuel said in part.

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At issue has been a serious dispute between the city and the two airlines over a plan to build new runways at O’Hare. At one time — when airline traffic was much higher — the airlines supported expansion and were willing to help pay 60 percent of the costs.

More recently, with business down, the airlines filed a lawsuit trying to block the city from going ahead with the expansion project without the approval of the airlines.

The mayor had accused the airlines of reneging on a 2001 promise to help see the project through.

“What we’re seeing here is the city’s willing to take this thing step by step, to give the airlines the ability later on the ability to come back and reassess,” DePaul University transportation expert Joe Schwieterman told CBS 2 Chief Correspondent Jay Levine. “Before this, the airlines might have perceived this as a freight train that couldn’t be stopped.”

–The Chicago Sun-Times contributed to this report, via the Sun-Times Media Wire

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