NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms Jackson Municipal Airport Authority, MS' outstanding $43.5 million airport revenue and refunding bonds at 'A-'. The Rating Outlook remains Stable.
RATING RATIONALE:
--Jackson-Evers International Airport (Jackson-Evers) is the primary service provider for the Mississippi State capital region, serving a primarily O&D passenger base of 616 thousand enplanements in 2010. The Jackson MSA is currently experiencing some setbacks from the economic recovery; however, Fitch expects resiliency in traffic levels given the airport's limited competition from neighboring airports, with the closest medium hub 180 miles away.
--The airport has experienced enplanements declines for four consecutive years at a CAGR of 4.9%. Current traffic levels are consistent with those seen prior to Hurricane Katrina, when the airport served evacuees and recovery efforts. Traffic for the first eight months of fiscal year 2011 is showing signs of stability with enplanements increasing 0.6%. As a result of lower enplanements, CPE has steadily increased for the past four years to $9.28 in 2010. Coverage has also declined in recent years but remains above 2.0 times (x).
--Service is somewhat concentrated, with Delta and Southwest representing 66% of market share in fiscal 2010. However, all carriers servicing the airport have maintained a consistent share of enplanements over the past five years, demonstrating an ongoing commitment to the Jackson market.
--The authority has a relatively modest debt burden, with debt per enplanement at $72.64 and 4.61x net debt to CFADS for fiscal 2010. The airport has a robust liquidity position with $15.9 million of unrestricted cash as of April 2011, equivalent to 443 days cash on hand based on 2011 budgeted expenses.
--The airport's five-year capital improvement program (CIP) is manageable at $86 million, approximately 70% of which will be grant funded. Projects are dependent upon available funding and will be deferred if funding is not received. No additional debt issuance is anticipated.
KEY RATING DRIVERS:
--Continued traffic declines may pressure the rating. Should enplanements fall below the 600 thousand level, net revenues may be pressured and the authority's credit profile may become inconsistent with the current rating level.
--Management's ability to actively control its expense profile and maintain healthy financial margins will be important to maintaining financial flexibility and credit quality going forward. Should margins erode, negative rating action may be warranted.
SECURITY:
The bonds are secured by the authority's pledge of net revenues from operations at Jackson-Evers, consisting of certain funds and accounts as described in the indenture. Customer facility charges (CFCs), collected by the airport's rental car concessions are also available for payment of parity airport bond debt service as a pledged revenue source. Passenger facility charge (PFC) revenue is pledged as security solely to the payment of PFC-eligible debt service.
CREDIT SUMMARY:
Enplanements at Jackson-Evers have returned to levels seen prior to Hurricane Katrina, following a significant increase in enplanements in fiscal year 2006 when the airport serviced evacuees and recovery efforts. Traffic in fiscal 2010 decreased by 3.3% to 616 thousand, but has shown some improvement in fiscal 2011 with eight-months year to date traffic increasing 0.6%. Management expects this growth to continue throughout 2011 along with slight growth in coming years due to population growth and economic developments in the Jackson downtown area. Service levels from the five air carriers serving the airport remains stable and unchanged in recent years, which Fitch views favorably. However Fitch notes that given the airport's small enplanement base, even slight changes in service levels by a carrier may translate to material changes in enplanement levels.
The airport operates under a hybrid use and lease agreement which provides month to month tenancy, giving either party the ability to cancel the agreement with 30-days written notice. Operating revenues increase by 0.6% in fiscal 2010, in-line with enplanements and above budget expectations. The increase is due to higher terminal rental fees, offsetting lower landing fees and non-airline revenues and increasing CPE for 2010 to $9.28 from $8.48 a year prior. Although CPE is high relative to other airports of similar size, it is reasonable given the lack of regional competition in the service area. The authority used a combination of surplus revenues from the previous year and cash to manage landing rates down and maintain a competitive CPE. This reliance on cash fund withdrawals may impact the airport's financial profile should enplanement recovery stagnate. Non-airline revenues continue to represent a large portion of the airport's operating revenues (approximately 64%), and decreased by 1.8% in fiscal 2010 due to recent enplanement declines. Seven-month year to date revenues are generally in line with the 2011 budget, which anticipates a 0.2% increase in operating revenue.
Airport management made considerable efforts to contain operating expenses in 2010. Operating expenses (including non-revenue reimbursements) increased by 3% in 2010. This compares to recent years, where operating expense growth has outpaced revenue growth, leading to slight declines in coverage levels from 2.14x in 2008 to 2.09x in 2010. Strategic management of operating expenses will be important to maintain coverage above 2.0, particularly should traffic be slow to recover. Fitch's base case scenario, which assumes slight improvement in enplanements along with historical expense growth rates, indicates coverage may drop to 1.65x by 2015 if the airport maintains CPE below $9.00.
The airport has a modest debt burden, leveraged at 4.61x net debt to CFADS. No additional debt is expected to fund the airport's five-year CIP which totals $86 million. Approximately 70% of the CIP is expected to be grant funded. Project implementation is dependent upon available funding and will be deferred if grant funding is not made available.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance', Aug. 16, 2010;
--'Rating Criteria for Airports', Nov. 29 2010.
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345
Rating Criteria for Airports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=578745
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