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Fitch Affirms Tucson Airport Auth's (AZ) Airport Revs at 'A'; Outlook Stable

Dépèche transmise le 11 mars 2011 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms Tucson Airport Authority, Inc.'s (the authority) approximately $23 million senior lien airport revenue bonds at 'A' and $65 million subordinate lien airport revenue bonds at 'A'. The Rating Outlook on all liens of debt is Stable.

RATINGS RATIONALE:
The underlying 'A' rating on the authority's senior and subordinate bonds reflects the airport's solid enplanement base, balanced airline market share with no one carrier accounting for more than one-third of enplanements, consistently healthy financial performance driven by diverse revenue streams, and historically sound debt service coverage in excess of 2.0 times (x) on an all-in basis. The rating also reflects the airport's low leverage of approximately 0% net debt to cash flows available for debt service (CFADS), internally funded capital plan, and extremely healthy liquidity levels- demonstrated by the airport's approximately 100% unrestricted cash and investments to long-term debt position in fiscal 2010. Credit concerns center on the moderately competitive environment in which the airport operates, and the traffic profile's significant tourism and leisure components.

KEY RATING DRIVERS:
--Overall maintenance of the authority's high levels of financial flexibility coupled with manageable capital needs going forward may lead to upward rating movement on the senior lien bonds.
--Management's ability to preserve its healthy liquidity balances, which provides an adequate cushion to the airport's smaller scale of operations.

SECURITY:
The senior lien bonds are secured by net revenues generated at the authority after the payment of operations and maintenance expenses. The subordinate lien bonds are secured principally by a pledge of available passenger facility charges (PFC) and a subordinate pledge of net airport revenues.

CREDIT SUMMARY:
Operating and financial trends have been positive, with operating revenues expected to be slightly higher in fiscal 2010 over fiscal 2009. The airport's healthy liquidity and strong balance sheet is largely supported by its airline use and lease agreement and by the great diversity of non-airline revenues, such as industrial and commercial space rentals, parking, concessions, jet fuel product sales, advertising, and land rents that all together accounted for 74% of total operating revenues in fiscal 2010. The authority's modest debt burden and right to retain 52% of income derived from industrial and commercial rents outside the calculation of airline rates and charges has also enabled the authority to maintain a competitive cost structure throughout the downturn. In fiscal 2009, cost per enplanement (CPE) was $7.34, which trended up marginally to $7.36 in fiscal 2010. Additionally, net operating income was also further maintained by two consecutive years of operating and maintenance reductions of 10.5% and 4% in fiscal 2009 and 2010, respectively.

Traffic recovery at the airport began in calendar year 2010, with traffic increasing every month, ending the year up 2.8%. These traffic trends are slightly higher than the airport's historical annual growth rate of 2.5%. From calendar year 2008 through 2009 traffic trends were significantly pressured, with the airport recording the largest loss in fiscal 2009 of approximately 17.5%. Additionally, the regional area's significant tourism and leisure component negatively contributed to the larger than average capacity. Fitch expects new and/or added service to foster additional traffic growth in fiscal 2011. The airport is projecting growth of 2.5% in fiscal 2011; which could be muted if fuel prices remain high.

Debt service coverage in fiscal years 2005-2010 was consistently high at or above 2.0x. In fiscal 2009, the authority generated an aggregate debt service coverage ratio of 2.21x, which far exceeds the rate covenant on both the senior and subordinate lien, set at 1.25x and 1.10x, respectively. For FY 2010, the authority expects senior debt service coverage to be above 3.0x, consistent with historical results. Similarly, subordinate lien debt service coverage is expected to be above 3.0x. The airport estimates senior lien coverage for fiscal 2011 to be very comfortable, with senior lien coverage projected to be 2.93x and subordinate lien debt service coverage to be at or above 3.0x. Fitch notes the additional protection afforded to senior lien bondholders as the authority's subordinate bonds are more vulnerable due to their direct correlation to enplanement levels and compromises a larger component of overall leverage. Senior lien bondholders are less exposed to passenger volatility and are becoming an increasingly smaller percentage of the overall capital structure. Thus, absent any additional leverage on the senior lien, upward rating action is possible.

The authority's main airport, Tucson International Airport, airline market share is well balanced, with legacy carriers and low cost carriers serving short to medium haul flights. The airport's two dominant airlines, Southwest Airlines and American, have retained stable market share at (33%) and (20%), respectively, and have a long history of serving the airport. However, while the airport's 95% origination and destination (O&D) traffic base provides a relatively stable base of service, the presence of nearby Phoenix Sky Harbor airport approximately 100 miles north with sizeable low cost carrier offerings, will likely constrain strong traffic gains and/or any shifts in passenger market share.

The authority's revised fiscal 2010-2014 capital plan is estimated at $142 million and major funding sources include AIP monies and PFC pay-as-you-go monies. AIP monies and grants are expected to fund approximately 77% of costs, PFC pay-as-you-go monies which will fund 13% of the plan, and internally generated funds account for the remaining 10% of total capital costs. The major capital component of the plan is a new parallel runway, which will be approximately 75% grant funded. Although the plan has currently been revised and is subject to refinement, it is currently expected that that authority will entirely fund its portion of costs internally without the use of debt financing.

Established in 1948, the authority is a nonpolitical, nonprofit corporation that consists of up to 115 voting members and is governed by a board of nine directors elected to three-year terms (staggered). The airport system consists of the airport, the principal commercial airport within the region, and Ryan airfield, a reliever airport. The city leases the airport and Ryan airfield to the authority, which extends through 2048 and 2053, respectively.

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 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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