NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms Palm Beach County (county), Florida, Department of Airport's approximately $131 million of airport system revenue bonds outstanding at 'A'. The Rating Outlook is Stable.
RATING RATIONALE:
The ratings reflect the following credit strengths:
--The airport's primary service area is an affluent region with favorable demographics and above average wealth levels;
--A moderate sized enplanement base that serves a mostly origination and destination (O&D) oriented traffic;
--A well-diversified carrier mix and manageable cost per enplanement (CPE) that should not be heavily pressured in the near term given the modest and internally funded capital plan;
--A healthy financial profile with historically strong unrestricted liquidity balances;
--The ability to generate consistent financial metrics even through the recent downturn, recording coverage levels at or above 1.65 times (x) since fiscal 2004;
--Overall low debt burden with the airport reporting an approximate $45 debt per enplanement ratio in fiscal 2010.
The ratings reflect the following credit concerns:
--Moderate volatility in the airport's traffic profile, demonstrated by the airport reporting multi-year traffic declines;
--The airport's dependence on leisure-oriented traffic;
--A competitive environment with nearby larger airports offering more frequencies and markets in the south Florida region.
KEY RATING DRIVERS:
--Stability in the airport's traffic base and passenger related revenue streams;
--Maintaining stable business performance in key passenger-generated revenues segments such as parking and concessions cash flows as non-airline revenues represent approximately 65% of total operating revenues;
--Stable trends with regard to the airport's cost structure and debt service coverage ratios.
SECURITY:
Airport system revenue bonds are revenue obligations of the county payable from and secured by the county's irrevocable pledge of all net revenues available for debt service and all funds and accounts established by the bond resolution.
CREDIT SUMMARY:
The airport benefits from an affluent service area with strong economic fundamentals. Palm Beach County, currently rated 'AAA' by Fitch, while facing heightened economic challenges during the current recession, should support a level base of enplanement activity at the airport, consistent with the current rating level. In addition, Fitch views the airport's carrier diversity and reduced reliance on service provided by Delta as favorable. PBIA enjoys a well balanced presence of legacy carriers and low cost carriers. Delta Air Lines, which enplaned 25% during fiscal year (FY) 2010 (down from 33% in FY 2005) narrowly remains the dominant carrier at PBI. Other carriers with a significant presence at the airport include jetBlue with 19% of total market share, followed by US Airways with 15%, and Continental and Southwest each with 13%.
Traffic trends at the airport were pressured during fiscal 2009 and 2010. Enplanements were negatively impacted poor national and regional economies characterized by high unemployment, increased competition with nearby competing airports, and sizeable reductions in air carrier frequencies and markets served at the airport, despite the mild backfill of incumbent carriers. During FY 2010, traffic declined by 3% compared to a steeper traffic decline of 8.7% during FY 2009, bringing the airport's enplanement levels back to approximately 2001 recorded levels. However, in the last quarter of calendar year 2010, traffic trends have shown some stabilization and improvement. Passenger traffic in October and November 2010 showed increases by 3% and 5%, respectively but was slowed in December 2010 due to weather related delays and cancellations. Additional frequencies and new non-stop markets offered in calendar year 2010 and through 2011 should foster moderate traffic growth and recovery going forward. During FY 2010, the serving airlines introduced new routes to a number of smaller markets while legacy carriers such as American and Continental increased frequencies to hub markets. For FY 2011, the airport forecasts a modest 2.5% increase in enplanements, slightly lower than the airport's fourth quarter of calendar year 2010 trend line.
Despite the recent traffic performance trends and softening of passenger-related revenues, the airport's finances remain solid and are supported by a healthy balance sheet with a low debt burden and strong liquidity position. In FY 2010, the airport maintained 307 days cash on hand, equal to approximately 30% of debt outstanding, and a low debt per enplanement ratio of approximately $45. The airport's sound balance sheet and low leverage should help to mitigate a slow traffic recovery and provide a degree of financial flexibility appropriate for the rating category. Additionally, airport management has taken measures during the last two fiscal years to counterbalance traffic losses in order to operate within a more constrained financial profile. Actions include initiatives that centered on the reduction in a number of staff positions, the execution of a hiring freeze, and no staff salary or COLA adjustments being awarded, resulting in a 3.4% total operating expense decrease for FY 2010 when compared to FY 2009. The airport's financial flexibility will be further augmented by the higher passenger facility charges (PFC) collection rate, now set at $4.50 from $3.00 in fiscal 2009, and the deferment of a runway extension - which would likely drive up the airport's cost structure if internal funds were insufficient.
Debt service coverage has fluctuated mildly through the economic downturn, primarily driven by large declines in non-airline revenue streams. In fiscal 2010, the airport expects debt service coverage to be a comfortable 1.76x, well above the department's rate covenant of 1.25x and slightly above reported coverage in FY 2009 of 1.65x. Comparatively, the airport reported a stronger debt service coveage ratio (DSCR) of 1.92x in FY 2008. The airport also maintains the ability to apply a portion of Passenger Facility Charges (PFCs) collected annually towards debt service coverage calculations, which would result in appreciably higher levels of coverage compared to the indenture reported calculation. In FY 2009, debt service coverage was substantially lower than coverage in FY 2008, due to higher growth in operating and maintenance expenses over operating revenues compounded with reductions in non-airline-related revenue sources such as parking and rental car transactions. DSCR for FY 2011 is expected to further slide from FY 2010 to 1.54x and remain above 1.50x through FY 2015, capturing the slight increase in annual debt service as the airport approaches maximum annual debt service (MADS) through FY 2015. Fitch views the drop in coverage to below historic levels as a risk; however, recent traffic improvements coupled with the recovery of rental car revenues and increased concession opportunities should allow the airport to continue to generate sound DSCRs and competitive CPE figures. In addition, the airport's healthy unrestricted liquidity balances and lack of near-term debt financing helps to mitigates the forecasted decline in coverage through FY 2015.
The airport's cost structure has remained largely stable since fiscal 2008, despite an approximate 9% enplanement loss in FY 2009. In FY 2009, the airport's CPE rose marginally to $6.93 from $6.20 in FY 2008. For FY 2010, the airport expects to report a still competitive CPE of $7.62. Projected CPE for FY 2011 indicates some financial pressure at the airport, with CPE forecasted to reach $8.05, however, the airport is also conservatively budgeting for minimal increases in non-airline revenues and higher operating and maintenance expense growth than achieved in recent years.
Management employs a balanced approach toward funding capital expenditures and has recently raised its PFC collection rate to $4.50 from $3.00. The higher PFC collections will defray costs for the major components within the airport's capital plan and therefore limit the reliance on future debt issuances. The majority of capital improvement plan (CIP) projects are demand-driven and related to the airfield, reflecting costs associated with future reconfiguration of the existing runway layout to improve the efficiency of aircraft operations and traffic flow. Funding of the program is expected to come from a number of sources, including federal grants and PFCs. While no additional bonding is anticipated, additional PFC supported debt could be issued if other funding streams are insufficient. Primary funding sources include Federal Aviation Administration Airport Improvement Program grants (44%), given that the department's larger airfield projects are eligible to be paid for from federal moneys, and PFC revenues applied on a pay-as-you-go basis will be used to fund the second largest share (23%) of the program. Airport facilities include 28 gates, three runways, and sufficient retail, airfield, and parking infrastructure. Due to the negative traffic trends, management believes the airport has sufficient capacity on its existing airfield apron for the next five to 10 years, depending on the recovery time frame of the economy.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance', dated Aug. 16, 2010;
--'Rating Criteria for Airports' dated Nov. 29, 2010.
Applicable Criteria and Related Research:
Rating Criteria for Airports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=578745
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345
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