Dépêches

Fitch Rates Orange County, California's (John Wayne Airport) $231MM Revs 'AA-'; Outlook Stable

Dépèche transmise le 16 juin 2009 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA-' rating to approximately $231 million in County of Orange, California airport revenue bonds issued on behalf of John Wayne Airport (JWA) consisting of:

--$68.8 million series 2009A;

--$162 million series 2009B.

Fitch also affirms Orange County's approximately $36 million in outstanding airport revenue bonds at 'AA-'. Bond proceeds will fund a portion of the costs for the airport and facilities improvement program, fund a debt service reserve account, fund capitalized interest, and pay certain expenses associated with the cost of issuance. JWA's revenue bonds are secured by a net revenue pledge of the airport, including passenger facility charge revenues (PFCs) and grants that are deposited into the revenue fund. The final maturity on all bonds is in 2039.

The 'AA-' reflects JWA's importance, especially as the only commercial airport in Orange County but also as the second largest commercial airport within the greater Los Angeles area; a strong 98% origination and destination (O&D) market that is supported by a wealthy service area; diverse air service (including short-, medium- and long-haul destinations) and favorable air carrier mix (including 60% mainline and 35% low cost carrier service); along with a very healthy financial position evidenced by a robust level of cash reserves, low debt burden, and strong coverage ratios. JWA operates under a settlement agreement that limits the maximum annual passengers (MAP) and is geographically landlocked to an existing 503 acre footprint, both of which serve to limit the amount of expansion and leverage the airport can undertake.

Concerns are centered in the recent traffic reductions as a result of the overall weakness in the U.S. and regional economy, including the airline industry that will pressure JWA's air service and financial results over the next few years. JWA operates in a competitive region and within a 50-mile radius of several other airports including Los Angeles International Airport (LAX), Long Beach Municipal Airport, Los Angeles-Ontario International Airport, and Bob Hope Burbank-Glendale-Pasadena Airport. On a historic and projected basis, JWA has an above average cost per enplanement (CPE), which does not appear to have an impact or discourage new entrants or air service additions. Both Virgin America and Southwest Airlines have each added five times daily flights to San Francisco International Airport (SFO) in April and May of 2009. Operating expense growth has increased each year between 4-9%, slightly outpacing revenue growth, which if continued on this trend may begin to erode financial strength. The airport will be under some pressure to control costs, manage capital expenditures through the capital program, and deliver the terminal and facility enhancement projects on time and on budget.

The Stable Outlook is driven by JWA's strong balance sheet and low leverage that ensure financial flexibility as the airport executes its modest capital expansion program during this weak economic period. Financial operations remain stable, with flat net revenues, according to 10-months fiscal year-to-date 2009, which demonstrates a fair amount of operational and financial flexibility despite a 12% decline in traffic over the same period.

Between fiscal 2003 and 2008, enplanements at JWA grew at a steady 3% on average annually. Enplanements softened in 2008, down approximately 4%, primarily related to high jet fuel prices, airline capacity reductions, and the bankruptcy and liquidation of Aloha Airlines. The trend has continued in 2009 and management expects to finish the fiscal year down 11% in enplanements, largely due to the weakening economy. Serving as a potential stabilizing factor at the end of fiscal 2009 and through 2010 are the recently added flights to SFO (provided by Virgin America and Southwest Airlines). At the end of fiscal 2008, Southwest had maintained its position as the largest carrier by market share at JWA, representing about 27% of the market, followed by American Airlines and American Eagle (18%), Alaska Airlines (12%), United Airlines (11%), US Airways (9%), Delta (7%), Continental (6%) and several other carriers that held below 5% of the market.

JWA's strong balance sheet is a unique strength of the credit as its unrestricted cash and investments and special investments with the treasurer increased to $171 million in fiscal 2008, up from $77 million in 2004, representing approximately 990 days cash on hand in 2008. The sizable cash balances provide JWA with a considerable amount of financial flexibility, which has allowed the airport to advance retire the entire remaining series 1997 bonds of $44 million, only 12 years after issuance. Airport management has historically demonstrated its willingness to use surplus revenues to pay down debt balances as soon as possible, which Fitch views favorably. Debt per enplanement equaled $16.16 in fiscal 2008 and was well below medians in the 'AA' category. When considering JWA's full capital program, debt per enplanement is expected to reach approximately $60, which is still favorable at the current rating level.

JWA's use and lease agreement employs a residual rate setting methodology on the airfield and a compensatory methodology in its terminal with a term that is set to expire in 2011. This business model has consistently produced strong net operating income results that reached a high $44 million in 2008, up from $41 million in 2004. Operating revenues and operating expenses grew annually at 4% and 5%, respectively, between 2004 and 2008.

Approximately 35.5% of JWA's revenues are derived from the airlines, while 61.8% are derived from all non-airline revenues sources that include parking, rental cars, concessions and other. General aviation does represent a considerable amount of activity at the airport, but only represents about 2.7% of total operating revenues. JWA's debt service coverage ratio (DSCR) had consistently improved and reached a high of 3.00 times (x) in fiscal 2008, up from 2.37x in 2004. The cost per enplanement (CPE) also increased to $8.65 in fiscal 2008, up from $7.69 in 2004. According various scenarios that contemplate further enplanement declines and the full execution of the airport's capital program through 2015, Fitch expects the airport's DSCR to remain well above 2.00x and consistent with the 'AA' category. Forecasted CPE is also expected to increase due to the additional terminal square footage, gates and loading bridges, but is expected to remain under $12.00.

The current capital improvement program for 2009-2015 totals $543 million. The largest element of the capital program is the $456.5 million for the airport improvement program (AIP) that consists primarily of the construction of Terminal C which adds six new gates, six new security checkpoints and enhanced baggage screening capacity along with Parking Structure C (to be completed in two phases). Management expects approximately 27.9% of the AIP to be funded with airport cash and approximately 55.7% to be debt financed, represented by the series 2009 bonds, of which approximately 3/5 of the debt issuance is eligible to be paid back with PFCs. The remaining 16.4% of the AIP will be funded from other sources.

Orange County's John Wayne Airport is located approximately 35 miles south of Los Angeles, between the cities of Costa Mesa, Irvine, and Newport Beach. JWA is owned and operated by Orange County, under the direct control of the five county Board of supervisors, with day-to-day operations managed by an Airport Director. Management has committed to meet several strong financial policy targets that include maintaining 500 days cash on hand and a debt service coverage ratio of 1.75x or higher.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.