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Fitch Affirms Albany County Airport Authority's Airport Revenue Bonds at 'A-'; Outlook Negative

Dépèche transmise le 13 avril 2012 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms Albany County Airport Authority's (the authority) $125.3 million of outstanding airport revenue bonds at 'A-'. The Outlook remains Negative.

KEY RATING DRIVERS

DECLINING TRAFFIC BASE WITH SOME CONCENTRATION AND COMPETITION: The airport's current enplanement base of 1.24 million has been declining since 2004 but for the first two months of 2012 is showing signs of stability. Southwest makes up approximately 41% of total enplanements, meaning there is moderate airline concentration. The airport is the primary service provider in the New York State capital region but has some competition from the New York City airports.

STRONG CONTRACTUAL FRAMEWORK WITH MODERATE COSTS: The authority utilizes a hybrid ratemaking methodology that is compensatory for the terminal and residual on the airfield. Airline cost per enplaned passenger (CPE) was $7.92 in fiscal year (FY) 2011, but price flexibility is somewhat constrained by nearby competition.

ADEQUATE FINANCIAL FLEXIBILITY: The airport has moderate leverage given a declining traffic base with debt per enplaned passenger of $105 and 6.5 times (x) net debt to cash flow available for debt service (CFADS). The authority maintains adequate debt service coverage of 1.33 times as compared to 1.27x in 2010. Fitch's coverage calculation, which considers passenger facility charges (PFCs) as revenues rather than an offset to debt service, is 1.21 times in 2011. Liquidity of $12.8 million or 143 days cash on hand (DCOH) is viewed as adequate.

ROBUST DEBT STRUCTURE: Albany's capital structure includes 100% fixed-rate amortizing debt, leaving the airport with zero exposure to volatility in the capital markets, as compared to 2010 when approximately 50% of the debt was variable rate.

MANAGEABLE CAPITAL IMPROVEMENT PROGRAM: The airport is in good physical condition and does not expect to issue additional debt in the near term to fund capital projects. The 2010 - 2014 capital improvement program (CIP) totals $139.3 million, $82.3 million of which is eligible for up to 97.5% grant funding. The FAA has recently increased the Airport share of FAA funded Airport Improvement Program projects from 2.5% to 5.0% but this will have minimal impact on the plan. The CIP size represents the airport's full extent of capital spending, as it may only implement projects included in its 5-year CIP. The plan is somewhat demand driven and thus is not expected to be fully implemented at current activity levels.

WHAT COULD TRIGGER A RATING ACTION

--The airport has an elevated dependence on traffic supported non-airline revenue sources. Further erosion in traffic volumes could lead to an unsustainable cost profile, negatively impacting credit quality. Absent significant improvement in the airport's traffic base, negative rating action is likely.

SECURITY

The bonds are payable from and secured by a lien on Net Revenues derived by the Authority in connection with the airport, as well as certain bond funds and reserves. PFCs are excluded from the definition of 'Revenue,' but can be pledged as revenue pursuant to the master bond resolution. PFCs can also be irrevocably pledged to pay debt service and to reduce debt service requirements.

CREDIT UPDATE

The Negative Rating Outlook reflects year-over-year enplanement declines since 2004. The airport's current enplanement base is 1.2 million, approximately 20% lower than its peak level in 2004, with the recent economic downturn and airline consolidations reducing seat capacity. Although there is no other commercial service located within a two hour drive from Albany, the airport has experienced significant leakage in enplanements to airports in the New York region as a result of high average fares. Traffic is up 2.2% for the first two months of 2012.

In December 2011, the airport initiated an Air Service Incentive Program to provide air carriers incentives to establish flights by offering credits on landing fees and terminal rents for a period up to 24 months. The program is intended to increase air service, lower airfares, and increase non-airline revenues. In addition, the airport was awarded a United States Department of Transportation Small Community Air Service Development grant which will provide the authority approximately $1 million in revenue guarantee to airline offering direct service to the west or southwest of the United States. Fitch will continue to monitor the impact of the revenue guarantee and incentive program on traffic levels. While this could lead to traffic stabilization, the routes would be subsidized and thus any traffic gains could be short term as the subsidy is not permanent.

The airport operates under a hybrid rate making methodology. Operating revenues excluding fixed based operations (FBO) increased by 1.7% in 2011 while operating expense excluding FBO increased by 3.6%. Since the economic downturn, management has taken a number of initiatives to enhance revenue sources and contain operating expenses to maintain financial flexibility.

Current CPE is $7.92 which management expects to increase to the $8 range in the near term with slight enplanement growth. Fitch's base case assumes a small enplanement decrease in 2012 and 2013 and moderate expense growth. Under such assumptions CPE reaches $11 by 2015 in order to meet 1.25x coverage.

Albany County Airport is located on 1,156 acres in Colonie, New York, seven miles from Albany's central business district and accessible via U.S. Interstate 87, 88 and 90 highways. It is classified as small hub airport. The airfield is comprised of two intersecting runways. The primary runway is 8,500 feet, while the second runway is 7,200 feet (expanded in 2006). Pavement Index for Runways, Taxiways and Apron are maintained in 'good' condition or better. The terminal consists of three levels, and began operations in June 1998 (replaced original 1959 facility, and incorporated the renovated 1979 terminal). The terminal is 290,000 square feet with 17 gates and 21 aircraft parking positions.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (Aug. 16, 2011);

--'Rating Criteria for Airports' (Nov. 28, 2011).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648832

Rating Criteria for Airports

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656970

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Business Wire

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