Fitch Rates Atlanta Airport's (GA) Sr. Revs 'A+' & Passenger Facility/Sub Revs 'A'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned the following ratings to bonds issued by the City of Atlanta on behalf of Atlanta International Airport (ATL):

--Proposed $176 million senior-lien airport general revenue bonds series 2010A 'A+';
--Proposed $414 million airport passenger facility charge and subordinate lien general revenue bonds (PFC Hybrid Bonds) series 2010B 'A'.

Fitch also affirms ATL's outstanding $1.44 billion senior revenue bonds at 'A+' and $555 million PFC Hybrid revenue bonds at 'A'.

The Rating Outlook for all bonds is Stable. Proceeds of both series of bonds will be used to pay capital program costs, with an emphasis on the new Maynard H Jackson International Terminal, and to refinance certain existing commercial paper notes.

RATING RATIONALE:
--ATL is the busiest passenger airport in the world with 88 million total passengers annually. It serves as the primary hub and corporate headquarters location for the second largest U.S. based air carrier, Delta Air Lines (Delta, Fitch IDR 'B-' with a Stable Outlook).
--The primary market area is large and locally-driven with 14.7 million O&D enplaned passengers served in FY2010. Passenger traffic at ATL has demonstrated greater resiliency during the recent economic downturn relative to most other large-hub airports.
--ATL enjoys limited air service competition from nearby airports, and its strategic southeastern geographic location as well as its substantial airside and terminal infrastructure can efficiently support a major hubbing operation.
--Expected airline costs per enplaned passenger are relatively low with modest upward pressure, even with the incorporation of ATL's current multi-year $2.9 billion capital improvement program (CIP).
--Signatory airline support continues to be evidenced by the recent extension of airline use agreements which have given approval for the current CIP and also provided more gate control back to the airport.
--Historical financial metrics are very healthy in terms of leverage, debt service coverage levels, and liquidity.
Credit concerns center on ATL's operating exposure to Delta and its affiliates, which accounted for 76% of total enplanements in fiscal 2010; the high level (68%) of connecting or transit passenger traffic; and the expectation of moderate declines in coverage levels relative to past performance as a result of its plan of leveraging from both the general airport revenue and PFC hybrid credits. Fitch notes that previous concerns with regards to ATL's variable rate exposure and swap arrangements have been mostly addressed and Fitch expects a more stabilized level of debt interest costs going forward.

KEY RATING DRIVERS:
--Maintenance of the current traffic base, particularly hub operations, as well as ongoing commitment from ATL's leading carrier, Delta Airlines, despite the recovery uncertainties in the economy and air travel industry;
--Continued execution of a sound funding approach for the CIP which is expected to be balanced between debt and other sources;
--Preservation of a moderate airline cost profile along with healthy coverage and leverage metrics.

SECURITY:
The airport general revenue bonds are secured by a first lien on airport net revenues. A senior lien on passenger facility charge (PFC) revenue and a subordinate lien on general revenues of the airport secure the PFC hybrid debt.

CREDIT SUMMARY:
Atlanta International Airport represents a major airport facility for the U.S. air transportation network, with significant direct air service to many U.S. and global destinations. With over 45 million enplanements and nearly 964,000 annual aircraft operations, ATL is ranked the most active airport in the world. While the airport is served by 30 passenger carriers, including 24 scheduled domestic carriers and six foreign flag airlines, there is a high degree of service dependency from Delta Air Lines. Delta and its affiliates accounted for about 76% of the airport's total enplanements in fiscal 2010, a relatively unchanged level in recent years. The next largest carrier, AirTran, serves a smaller but still relevant 18% of airport traffic. Both carriers currently rely on ATL as its primary base of service and connecting operations. Overall, connection traffic contributes to about 68% of total traffic. Even with significant corporate events involving Delta over the past five years including a bankruptcy filing followed by a successful merger with Northwest Airlines, the carrier has demonstrated a very strong commitment to the Atlanta market in terms of air service and employment. While at a smaller scale, AirTran has similarly operated its largest operations at ATL, and Fitch will monitor developments surrounding the proposed acquisition of AirTran by Southwest as it would relate to service changes that would affect the airport's traffic base and credit. Despite the economic downturn, ATL's traffic levels have remained largely unchanged, and recent figures indicate small but positive traffic growth. Based on calendar year-to-date figures, the airport realized a positive 0.8% traffic growth. Through 2015, projections call for a reasonable 1.8% average growth rate with enplaned passengers reaching 49.6 million. The completion of the new international terminal and the entrance of service by Southwest under its own brand may serve as catalysts for future growth.

Atlanta is currently progressing through a multi-year $2.9 billion capital program with about half of the costs geared towards the new Maynard H. Jackson International Terminal. This project is expected to be completed by the second quarter of 2012 and will provide much needed international service capacity to the airport. Currently, Atlanta offers the sixth largest international traffic base for a U.S. airport with nearly 4.4 million enplanements. Growth of international passengers has been significantly higher than those for domestic in recent years. Funding for the capital program includes the series 2010 general revenue bonds and the PFC hybrid bonds, future general revenue bond issues totaling $575 million as well as other sources that include PFC pay-go funds, grants, and other airport funds. The combined debt level (general revenue plus PFC hybrid) represents a modest $48 per enplaned passenger. Even with the proposed bonds, the ATL's leverage is considered modest for a large-hub airport.

ATL is supported by a well positioned financial profile that include solid overall debt coverage levels of its general revenue bonds 1.66 times (x), moderate debt levels of $48 per enplanement, and substantial unrestricted cash reserves of $454 million. Airline costs per enplanement (CPE) are also modest for a large-hub airport at $3.40. Taking into account the proposed series 2010A bond issue and a proposed $575 million bond issue in 2011 to fund additional capital projects, coverage levels are expected to decline to the 1.50x level while CPE rises modestly to $5.22. Separate from the airport costs, the all-in CPE that includes additional outside operator payments rises by just $1.50 above the base rate. The hybrid PFC bonds have a history of self-support from the PFC collections. Fiscal 2010 coverage from PFCs was over 5.5x and is expected to remain over 2.0x of future maximum annual debt service based on forecasted traffic levels. There is still some risk to the PFC credit as coverage of the hybrid PFC bonds from PFC collections is to a small extent dependent on the receipts derived from connecting traffic. Still, a subordinate lien on airport general revenues provides adequate risk mitigation. At current traffic levels, the airport collected PFC receipts in excess of $175 million annually. ATL's ability to maintain sound financial metrics as indicated in its current projections will be a key driver for the rating maintenance.

ATL's financial profile has served as a key element of strength to the credit. Both the cash reserves and the CPE levels have been well managed over the past five years with the airport generating significant revenues from non-airline sources, including concessions and PFCs. Airlines contribute a relatively low 38% of total operating revenues while PFC collections at current traffic levels exceed $175 million per year. While airline payments increased by 7% since fiscal 2008, primarily due to rising debt service and operating requirements, the current airline cost is still low for a large hub airport at $3.40 per enplanement. Debt service coverage levels for the senior lien GARBs over the past three years have ranged from 1.66x to 2.10x. Fitch notes that the airport restated its financial statements for the fiscal years 2003 through 2008 due to incorrect expense classifications. While a multi-year restatement of expenses is not a typical action for an airport enterprise, Fitch does not view the restated results to adversely affect the airport's overall financial condition. With regards to the hybrid bonds, PFC receipts in fiscal 2008 provided a strong 3.5x coverage level of debt service. With over $140 million of surplus cash flow generated from PFC revenues, ATL has considerable flexibility to apply such funds for PFC-eligible capital projects or general revenue bond debt service payments. Currently, it also maintains strong flexibility with approximately $454 million of unrestricted fund balances, equivalent to over two times of current operating expenses.

The City of Atlanta owns the Atlanta International Airport and the facility is operated and maintained by city's department of aviation. Major facilities include five parallel runways and a terminal complex with six concourses that hold 199 gates for domestic and international use.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance', dated Aug. 16, 2010;
--'Airports Rating Criteria Handbook for General Airport Revenue, PFC and Letter of Intent Bonds' dated March 12, 2007.

Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345
Airports Rating Criteria Handbook for General Airport Revenue, PFC and Letter of Intent Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=264948

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Contacts

Fitch Ratings
Primary Analyst:
Seth Lehman, +1-212-908-0755
Senior Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Vanessa E. Roy, +1-212-908-0508
Associate Director
or
Committee Chairperson:
Cherian George, +1-212-908-0519
Managing Director
or
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst:
Seth Lehman, +1-212-908-0755
Senior Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Vanessa E. Roy, +1-212-908-0508
Associate Director
or
Committee Chairperson:
Cherian George, +1-212-908-0519
Managing Director
or
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com