Dépêches

Fitch Affirms Dayton, Ohio's Airport Revenue Bonds at 'BBB+'; Outlook Stable

Dépèche transmise le 20 juillet 2009 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'BBB+' rating on approximately $38 million outstanding City of Dayton, Ohio (the city) airport revenue bonds. The Rating Outlook is Stable. The bonds are payable from net revenues generated by the operations of Dayton International Airport (DAY, or the airport).

The 'BBB+' rating is supported by the airport's modestly-sized traffic base that has a history of volatility and influenced by the ongoing competition from other regional airports, a well-balanced carrier mix, manageable near-term capital requirements that can be funded without additional direct airport debt, and historically strong financial performance evidenced by diverse operating revenues, high bond coverage levels and robust fund balances. Fitch also factors into the rating the notably positive management actions initiated over the past several years to significantly reduce airport debt and airline costs, which together should provide added flexibility to attract carrier service as well as meet financial obligations even during the dual downturn in the economy and aviation industry. While traffic levels held up well into late 2008, Fitch notes that Dayton's traffic is off by nearly 11% through the first five months of fiscal 2009. Economic conditions in the Dayton service area have weakened with unemployment rates climbing above 11% in recent months and will likely present challenges to the airport to recover from its recent traffic losses.

Fitch's primary credit concern for this credit is still focused on the significant level of competition from other larger regional airports, particularly Cincinnati and Columbus. In recent years, reductions in service at Cincinnati coupled with a more competitive cost structure at Dayton resulted in positive traffic growth through fiscal 2008. Maintaining a favorable cost per enplanement (CPE) level - projected at $4.50 per enplanement in 2009 as compared to $13.84 in 2005 - in future years will likely be a key component to preserving or building carrier service levels. Still, Fitch believes the competitive environment may lend to continued volatility in traffic performance as well as ongoing demand elasticity based ticket prices across all three airports that are within a relative close 70 miles of each other.

The Stable Outlook reflects Fitch's expectation that the airport can maintain its current strong fiscal position and low cost profile despite the recent weakness in traffic and ongoing competition for traffic demand. Projects anticipated under the capital program should provide positive revenue impacts and help preserve the strong debt service coverage levels.

In fiscal 2008, Dayton served nearly 1.5 million enplanements, the highest traffic level recorded during the past 15 years and a 2.7% growth rate over the prior year. The growth rate in traffic for 2008 is particularly notable given the limited number of airports demonstrating positive growth in that year. Still, historical trends at the airport have been somewhat uneven with traffic growing at an average annual growth rate of 2.8% since 2000 despite traffic losses of 8.8% in 2001 and 15.4% in 2005. Significant annual volatility is due in part to the significant degree of competition from other nearby airports and the price-sensitive nature of the Dayton market, where local area passengers may opt between the airport, Cincinnati/Northern Kentucky International Airport (55 miles from the city) or Port Columbus International Airport (70 miles). Historically, Cincinnati typically has had higher average fares than Dayton but far greater non-stop service levels, primarily from Delta Air Lines. Columbus also has more flight service than Dayton as well as some carrier overlaps in certain markets. Fitch notes that during the current downturn, Dayton's traffic losses are accelerating (nearly 11% through May 2009) but have been far more limited to those in Cincinnati (down 24.7%) and Columbus (19%). Dayton also benefits from a significantly more diverse airline base than the other two airports with AirTran as the leading carrier (23% share of enplanements), followed by Delta Airlines (20%), US Airways (16%), and American Airlines (12%) and United Airlines (11%).

The airport's current terminal and airfield facilities are estimated to adequately meet passenger demand through 2013 and management does not anticipate additional capacity expansion during that period. Airport capital requirements through 2013 total $157 million with key projects including a new parking garage and rental car center, terminal and baggage screening security improvements, airfield pavement, and other land use development. Even with the size of this capital program, Dayton expects none of the funding to come from airport revenue bonds. In addition to $10 million of city general obligation bonds used to pay portions of the parking garage project, the airport expects most additional funding to come from federal grants, passenger and car rental facility charges, and airport fund. Fitch expects projects tied to the garage, land use development and terminal concessions to lead to increases in airport operating revenues which should result in a continuation of favourable financial performance.

While airport financial performance has generally been strong, the management initiatives to lower its revenue debt and reduce airline costs have been notably positive developments particularly since they implemented shortly after UPS/Menlo closed its cargo hub operations at Dayton, leading to sharp reductions in aircraft operations and landed weight. In 2007, Dayton reduced its airport debt by $38 million through early defeasance using airport fund balances. Currently, airport revenue debt levels remain low at $38 million, or $27 per enplanement. The reduction in debt allowed the airport to lower airline charges by more than 50% between fiscal 2006 and 2008. Airline costs, which peaked at $13.84 per enplanement in 2005 are now much more competitive for the region at $5.50 in 2008. For fiscal 2009, the budgeted airline cost level was reduced even further to a $4.50 level. The carriers operate under an operating permit that provide for preferential gate usage and rate setting employs a cost-center residual methodology.

With both the reduction in airline charges and increases to concession receipts and other passenger charges, operating revenues have become more diversified with airline fees comprising only 22% or total revenues as compared to nearly 50% in 2006. Fitch notes that management has also taken aggressive actions to control operating expenses, which have fallen from $26.5 million in 2006 to just $21.7 million in 2008. The reductions in both operating costs and debt service requirements support the reductions in airline charges without adversely affecting airport net revenues. Debt service coverage levels were very strong in fiscal 2008 at 5.32 times (x) as compared to the 2.5x to 3.0 x ranges in prior years. Future annual debt service requirements are under $3.0 million versus over $6 million before the debt defeasance action. Unrestricted cash reserves still remain strong at $31 million translating to 80% of remaining airport revenue debt and nearly 18 months of budgeted operating expenses.

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