Fitch Affirms Aruba Airport Authority N.V. at 'BBB'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms Aruba Airport Authority N.V.'s 'BBB' underlying long-term rating on approximately US$38.6 million outstanding airport revenue bonds. The authority's revenue bonds mature in 2013 and 2015. Net revenues derived from the authority's ownership and operation of Queen Beatrix International Airport (the airport) secure the bonds. The Rating Outlook is Stable.

The airport is performing in line with expectations with no deterioration in operations since the previous review. The rating affirmation reflects: i) a strong debt service coverage ratio of 2.18 times (x); ii) steady enplanements compound annual growth rate (CAGR) at 2.1% since 2004; iii) adequate internally-funded capital improvement plan with no near-term future issuances planned; iv) a relatively short amortization profile of the authority's outstanding revenue bonds; and v) the ability for the airport to modify tariffs passenger facility charges (PFCs) as needed, without regulatory interference by the government.

Credit concerns center on: i) considerable revenue concentration, with PFCs and related charges accounting for 68% of operating revenues in 2009; ii) significant dependency on a single industry, tourism, which has proven both competitive and cyclical for enplanements; and iii) greater operating expenses due to additional plots of land (five acres in 2009) and two acres expected to be acquired in 2011.

In 2009, the airport reported debt service coverage of 2.18x, slightly down from debt service coverage of 2.29x in 2008, and well above the authority's rate covenant of 1.35x. Most of this revenue, roughly 68%, was produced by PFCs. However, total non-aeronautical revenues, mainly concession fees, increased 11% in year-to-date (YTD) 2010 compared to 2009, and represent a 1% increase of the total operating revenues.

Number of enplanements slightly rose 0.3% YTD in 2010, while number of flights grew by 3.2% in the same period. In 2009, enplanements dropped 2.5% from previous year, as a result of the global economic recession. The impact to the airport, nevertheless, was not as material as it was on peer competitors like Cancun or Bahamas where the number of enplanements dropped significantly. Aruba proved to be a consolidated tourist destination during difficult years for leisure and travel.

The airport's finances are healthy, management is responding to economic swings accordingly, strategic agreement with Schiphol International is providing positive results, and an adequate capital expenditures plan is in place. Schiphol's long experience in airports operations has been instrumental to design and implement adecuate plans and strategies to achieve specific goals. This relationship is expected to continue for at least five years.

Current capital improvement plans can be internally funded. Medium-term capital requirements can be covered with operating cash flows and restricted cash balances, without near-term future debt issuance planned. The airport shows some financial flexibility due to i) the fact that no further debt will be issued, and ii) maturity of the bonds, in 2013 and 2015. Both the General Fund account, and the Reserve Account, have been funded as established by the indenture. The airport has access to the General fund only through the O&M fund and CAPEX fund. The General Fund is funded from the revenue account and aproximately half of the balance is currently liquid.

Going forward, Fitch expects the strategic relationship with Schiphol international to continue providing substantial improvements to the airport's operations. While diversification of revenues is forecasted to take place slowly, non-aeronautical revenues are expected to make larger contributions; in the mean time, Fitch will continue to closely monitor traffic and passenger trends. Adequate levels of debt service are believed to remain stable; since the airport proved to be resilient to external economic shocks. Fitch anticipates a slight growth in enplanements for the airport during 2010 and 2011.

Applicable criteria available on Fitch's website at www.fitchratings.com includes:

--'Rating Criteria for Infrastructure and Project Finance' dated Sept. 29, 2009.

Additional information is available at www.fitchratings.com.

Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=468928

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.