NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BBB' rating on $32 million outstanding airport revenue bonds for Aruba Airport Authority N.V. The Rating Outlook is Stable.
Key Rating Drivers:
--Sustained traffic performance: The airport has a steady enplanement record since 2004. The tourism sector in Aruba has proved to be resilient against external and domestic shocks in recent years;
--Strong global operator: Aruba Airport has in place a strategic management agreement with Schiphol (leading global airport operator);
--Tariff-setting flexibility: The Airport Authority is able to independently modify tariffs with respect to any service or facility, in order to attain a minimum of 1.35 times (x) debt service coverage ratio (DSCR);
--Sound diversification: No more than 17% of total commercial traffic is enplaned by a single carrier. The largest three airlines, combined, are responsible for nearly 39% of the overall passenger traffic;
--Adequate funding of capital plan: Medium-term capital requirements can be fully financed with operating cash flows and restricted cash balances. Capital improvement plan is internally-funded with no near-term future issuance projected;
--Moderate leverage: The level of leverages provides adequate flexibility to the financial profile;
--Significant market dependency: Total passenger traffic is highly dependent on the tourism industry.
What Could Trigger a Rating Action?
--Revenue contraction from a severe reduction in passenger traffic;
--Operating expenses and Major Maintenance significantly higher than projected.
Security
The bonds are secured by all revenues collected or received by the company in connection with the services and facilities furnished by the Airport.
Credit Update
The airport maintains an adequate traffic performance to service debt at 2.01x. Total passenger traffic grew by 3.0% over 2009, surpassed 1.9 million and reached a record-high. Enplanements grew at a compounded annual growth rate (CAGR) of 2.3% during the past five years. The steady growth over the last years reflects the consolidation of the airport as a mature asset. Fitch expects traffic performance to continue modest growth patterns.
The Airport Authority renegotiated the strategic agreement with Schiphol International B.V. in 2010 to extend the contract until 2015. Schiphol's operating capabilities play an important role in maintaining and operating Queen Beatrix International Airport's facilities and services adequately. The strategic partnership has resulted in cost-savings and improved operations.
Fitch considers the ability to independently modify passenger fees and tariffs as a credit positive. Rate setting flexibility largely mitigates revenue risk and offsets sudden contractions in passenger traffic. Current passenger facility charges (PFC) stand at US$23.50, aligned with other major tourist destinations in the Caribbean.
Current traffic market diversification is balanced and consistent with peer leisure-market airports. No single carrier enplanes over 17% of total traffic, and the three major airlines, combined, are responsible for 39% of the total share. American Airlines is the leading carrier by market share, followed by JetBlue, U.S. Airways, and Continental. Total PFC-paying passenger traffic is mainly composed by: 63% from the U.S., 16% from Latin America, 10% from Netherlands Antilles, and 8% from Europe. Reliance on U.S. travelers is similar to tourist destinations in the region.
Required major maintenance and capital expenditures are financed with an internally funded Capital Improvement Plan account. According to Business Plan 2011-2015, current operating cash flows and restricted cash balances available are sufficient to fully finance short to medium-term capital requirements. The Airport General Purpose Fund increased by 3.8% from 2009, totalling US$30.3 million by end of 2010. The balance of the fund is allocated for future routine capital needs, and may be employed for any purpose through OPEX and CAPEX funds. Total Restricted Cash Balance reached US$54 million by the end of same year, of which nearly 50% is liquid.
Net operating income of US$22 million is adequate for the current level of outstanding debt of US$32 million. In 2010, aeronautical revenues grew by 1.2% and non-aeronautical revenues by 1%. Housing expenses increased near 17% as a result of higher electricity and water expenses. Other Operating Expenses resulted significantly higher due to a combination of factors, such as: termination benefits, salaries and social security contributions, pension contributions, and professional services. The combination of these factors, coupled with higher amortization levels, resulted in a reduced DSCR of 2.01x in 2010, compared to 2.18x in 2009. Fitch believes the airport's financial profile will continue to be strong, and able to provide reasonable flexibility under the back-loaded amortization schedule.
Aruba Airport Authority is a private corporation with limited liability under the laws of Aruba. The stock of the Authority is entirely held by Aruba.
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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