CHICAGO--(BUSINESS WIRE)--Fitch Ratings affirms Charlotte, North Carolina's $694 million senior lien general airport revenue bonds at 'A+'. The Rating Outlook is Stable.
Key Rating Drivers:
Building Traffic Base Subject to Concentration
and Connecting Risks: Charlotte-Douglas International Airport (the
airport) enjoys a stable-to-growing travel base benefiting from its
strategic location and status as a primary US Airways (IDR 'B+' by
Fitch) hub. Charlotte handles over 20 million enplanements, up 27% since
2007, of which approximately 75% are connecting passengers. The
airport's large enplanement base has risk attributes associated with US
Airways presence and scheduling decisions due to the carrier's dominant
market position at 90% of the total passenger volumes.
Revenue Risk - Volume: Midrange
Strong Revenue Profile: The
airport's hybrid airline use agreement framework, coupled with solid
contributions from non-aeronautical revenues, allows for strong debt
service coverage metrics at or above 2.0(x) times, the ability to
accumulate exceptional liquidity while still translating into an
extremely competitive cost per enplaned passenger (CPE) levels at or
under $1.00.
Revenue Risk - Price: Stronger
Conservative Debt Profile: The
airport's debt structure consists of 83% conventional fixed-rate debt
with level-to-declining debt service. Approximately $120 million of the
airport's debt is in unhedged variable-rate mode.
Debt Structure: Stronger
Extremely Low Leverage for Large Hub
Airport: Net debt/ cash available for debt service (cfads) is below 2.5
and expected to evolve below 1.0 over next two to three years. Balance
sheet strength is highlighted by $400 million in unencumbered reserves,
translating to over 1,200 days cash on hand. A $35 long-term debt per
enplanement is among the lowest in the U.S. for an airport with
significant hubbing operations.
Debt Service and Counterparty risk: Stronger
Manageable capital
plan: The airport has a manageable and demand-driven capital plan,
comprising $341 million of projects currently funded and underway and an
additional $82.6 million in planned projects for the next 12-24 months.
Future projects are flexible and can be initiated when needed, with
airline approval.
Infrastructure Development & Renewal: Midrange
Rating Sensitivities:
--Reduced or eliminated US Airways hub,
resulting in loss of greater than 25% of total air traffic
--Initiation
of significant debt-funded capital projects without increase in air
traffic and revenue sufficient to support new facilities
SECURITY:
The bonds are secured by a net revenue pledge from
operations of the airport, along with additional accounts held under the
resolution.
CREDIT SUMMARY:
Passenger traffic growth at the airport has been
strong in recent years and continues to outperform prior traffic
forecasts. Charlotte's traffic base achieved a record of more than 20
million enplaned passengers in fiscal 2012, due to strong growth in
connecting passengers as US Airways continues to focus its hubbing
through the airport. While O&D enplanements declined slightly in 2012,
O&D remains 4.7% above 2007 levels. Connecting enplanements have shown
robust growth through the 2008-2009 downturn and are 37% above 2007
levels without a single years of decline since 2003. Continued
optimistic performance is expected as the airport forecasts overall
enplanements to grow by a conservative 1% per annum through fiscal 2017.
With the benefit of strong business performance, debt service coverage continues to remain very comfortable at or above the 3.0x range, using the airport's indenture-based coverage calculation. In Fitch's more conservative calculation, DSCR is above 1.9x, excluding revenue carried over from prior years and treating PFCs as an addition to revenue rather than a debt service offset. Going forward, the airport expects to generate coverage levels in line with historical performance, hitting a low of slightly under 2.8x in fiscal 2017 (1.7x using the Fitch calculation).
The airport's low debt burden results in extremely competitive CPE levels. Historically, the airport's CPE has been consistently under $1.00, ranging from $0.78 to $0.96 during three most recent fiscal-year periods through 2012. In fiscal 2013, the airport expects to generate a very competitive $0.93. Longer term forecasts show CPE below the $1.00 level through fiscal 2017. Internal liquidity continues to be a credit strength, with the airport maintaining over 1,200 days unrestricted cash on hand as of fiscal 2012.
Despite the airport's extremely healthy fiscal strength and flexibility, Fitch does not believe upward rating movement is likely given the high single-carrier concentration and dependence upon connecting traffic. With the US Airways - American Airlines merger expected to close in the third quarter of 2013, there is the potential for operational changes at all of the combined carrier's hubs, including Charlotte. Still, Fitch notes that Charlotte is well-positioned to maintain greater credit stability even under adverse conditions with regard to adverse scenarios for carrier service or connecting traffic. Specifically, if the combined American / US Airways were to measurably restructure its route network and de-emphasize Charlotte airport as a primary connecting hub, there would likely be an immediate effect on the airport's operations. US Airways alone handles approximately 60% of the total O&D traffic base and the timing and possibility for backfill may be limited. However, the airport's strong internal liquidity, modest capital demands, flexibility to increase PFC charges, and low cost structure position the airport well to deal with such a challenge.
Under a ratings case scenario reviewed by Fitch that assumes a high-stress 100% reduction in Charlotte's connecting traffic, airline costs could be significantly higher, nearing the $4.00 to $4.50 per passenger range. The stress scenario also indicates that coverage would fall below 2.0x, even when assuming management is taking steps to increase the airport PFC rate to $4.50 and apply unspent PFC balances to reduce annual debt service requirements. Thus, while the airport would continue to rely heavily on PFC collections to support a low cost structure, long-term traffic depressions may limit the airport's utilization of the PFC to offset debt service requirements. Similarly, lower passenger levels would likely affect the revenue sharing benefits with the signatory airlines.
The airport is owned by the City of Charlotte and operated as a self-supporting enterprise fund. An appointed aviation director manages airport operations and capital improvements. Legislation has been introduced in the North Carolina General Assembly (Senate Bill 81) to create the Charlotte Regional Airport Authority and transfer authority over the Airport from the City to the new airport authority. It is not known at this time what impact, if any, this change would have on the airport's management and operations.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Rating Criteria for
Infrastructure and Project Finance' (July 12, 2012);
--'Rating
Criteria for Airports' (Nov. 28, 2012).
Applicable Criteria and Related Research
Rating Criteria for
Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867
Rating
Criteria for Airports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695600
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=788799
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