NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms Allegheny County Airport Authority's outstanding $400.8 million Airport Revenue and Refunding Bonds at 'BBB+'. The authority also has $9.8 million of subordinate debt not rated by Fitch.
The Outlook is Stable.
KEY RATING DRIVERS:
--Stabilizing origination and destination (O&D) passenger base experiencing enplanement growth over the last 15 months. Enplanements increased by 2.0% in 2010 and 5.9% for year to May 2011. Enplanement growth has signaled stability after a decade of continuous enplanement decline due to the downsizing of US Airways.
--Increasing penetration of low cost carriers accounting for approximately one-third of enplanements making the airport price competitive relative to neighboring airports. The closest competing airport is Cleveland Hopkins, approximately 117 miles away. Some carrier concentration exist, top three carriers represent approximately 63% of enplanements. However, carrier service has remained stable.
--The authority has moderate debt burden. Debt per enplanement in 2010 is about $107 and leveraged at 5.25 times (x) net debt to cash flow available for debt service (CFADS). Debt burden is expected to ease in the upcoming years given the rapid amortization through 2020. The airport has a low unrestricted cash position of approximately $12.0 million outstanding as of Dec. 31, 2010 which is equivalent to approximately 50 days cash on hand. However the airport has additional liquidity from Operation and Maintenance reserves, renewal and replacement reserves, and rolling coverage reserves totaling $32.4 million.
--Diverse revenue sources including contribution from state gaming revenues, customer facility charges (CFC) and a portion of passenger facilities charge (PFC) revenues which go towards reducing direct airline costs. Applications of such revenues have helped the authority maintain a stable CPE around $14.
--Modest capital program through 2018 primarily funded by PFC and grant revenue, a relatively small addition of new borrowings which should not significantly change the overall debt burden of the airport.
--Fully residual use and lease agreement provide adequate financial flexibility with senior debt service coverage of 1.46x and total debt service coverage of 1.41x.
WHAT COULD TRIGGER A RATING ACTION?
--A measurable increase in enplanements and related non-airline revenues that results in a declining trend in cost per enplanement (CPE);
--Further demonstration of stable carrier service levels.
SECURITY:
Bonds are secured by the net revenues generated from the operations of the airport.
CREDIT UPDATE:
The changing dynamics at the airport has stabilized as uncertainty surrounding US Airways activity at the airport has minimized. US Airways continues to be a major carrier at the airport with 27% of enplanements. Other major carriers are Southwest/AirTran and Delta with about 29% and 17% of enplanements respectively. The increased presence of low-cost carriers in particular has enabled to airport to be price competitive relative to neighboring airports. Lower average fares have provided a more competitive profile and have attracted customers from a broader geographical area. Traffic at the airport is primarily O&D making it less susceptible to the volatility of any one airline. The airport appears to have reached their new base level of traffic at 4.1 million, compared to 9.8 million in 2000 when the airport was a connecting hub for US Airways. Fitch expects slow but steady growth going forward.
Non-airline revenues increased by about 2.9% in 2010 and up by 9.3% in the first half of fiscal year 2011. The rise was largely due to higher enplanements and parking revenues. The airport recently implemented a CFC charge of $3 which is anticipated to generate additional revenue of about $3.8 million per year. In addition, the authority benefits from gaming revenues assigned to the airport under the gaming act. The remaining balance of $93 million is expected to be paid at about $12.4 million per year. These sources of revenues have enabled the authority to stabilize and avoid further increase to an already high CPE. Debt service coverage ratio (DSCR) as calculated by Fitch which excludes rolling coverage is 1.1x. Fitch views the gaming revenues as an important credit enhancement but is also indicative of the challenges the airport has in meeting all of its cost requirements and remaining competitive on airline rates absent some external revenue infusion. Fitch calculated DSCR excluding gaming revenues is 1.0x.
The authority has a moderate debt burden, leveraged at about 5.25x net debt to CFADS as at the end of fiscal year 2010 with significant amortization through 2020. The 5-year capital investment program is moderate primarily funded with grants and not expected to marginally impact the overall debt burden.
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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