Fitch Affirms Capital Region Airport Commission's (VA) $124.7MM Revs at 'A-'; Outlook Stable

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A-' rating on Capital Region Airport Commission's (Virginia) approximately $124.7 million in outstanding airport revenue bonds issued on behalf of Richmond International Airport (RIA or the airport). The Rating Outlook remains Stable.

RATING RATIONALE:

--RIA serves a relatively small but primarily origination and destination (O&D) traffic base (98% of total passengers) serving the central region of Virginia. Enplanements decreased 7.5% and 2.4% in fiscal year (FY) 2009 (ended June 30) and FY2010 to the current level of 1.6 million. However, enplanements are up 1.6% through March for FY2011.

--A highly diverse carrier mix with the two largest serving airlines, Delta and US Airways, comprising 27% and 24% of enplaned passengers, respectively (including regional carriers).

--The airport operates with a competitive and generally stable cost structure ($5.12 cost per enplanement [CPE] for FY2010). Fitch believes that management will take prudent actions to largely maintain the current CPE level which is reasonable for a small hub airport.

--Proactive management of airport costs evidenced by an approximately $1 million reduction in operating expenses in each of FY2009 and FY2010, while simultaneously maintaining rate making flexibility.

--Solid financial metrics from a leverage, coverage, and reserve position. The airport's debt service profile is relatively flat through 2026 and declines thereafter through maturity in 2038. Additionally, debt service coverage has exceeded 1.6 times (x) since 2005; RIA maintains a strong balance sheet with 344 days cash on hand (DCOH) as of February 2011, and management does not expect to issue additional debt in the near term.

--Diversity of operating revenues although a reliance on certain non-airline revenues exposes the airport to enplanement volatility. Non-airlines revenues generate 90% of the pledged revenues with the largest component, parking revenues, comprising approximately 47% in fiscal 2010.

KEY RATING DRIVERS:

--Stability of or rebound in the airport's enplanement levels, in conjunction with revenue growth and/or cost controls that will maintain healthy financial metrics;

--Continued strong liquidity and no meaningful dilution of existing debt coverage levels; and

--AirTran service changes at the airport after the Southwest-AirTran merger.

SECURITY:

The bonds are secured by the net revenues of RIA's operations and certain funds under the bond resolution.

CREDIT SUMMARY:

The airport is a small hub that serves central Virginia and is located approximately eight miles from Richmond's central business district. As a result, RIA's passenger traffic is 98% O&D and primarily business travelers. Current airport enplanement levels are 1.6 million and have grown at a five year compound annual growth rate (CAGR) of 1.4% between 2006 and 2010; however, enplanements were down 7.5% and 2.4% respectively in FY2009 and FY2010 as a result of the recession. Positive growth returned in fiscal 2011, though, with enplanements up 1.6% for the nine months ended March 2011.

RIA maintains a diverse carrier mix with no major airline comprising more than 16.4% on a standalone basis. Delta and US Airways have the largest market shares with 27% and 24%, respectively (including regional carriers). AirTran held 9.3% market share in FY2010. It is too soon to know what impact, if any, the Southwest-AirTran merger will have on the airport. Aside from eight major carriers, multiple regional carriers collectively comprise 40% of total enplanements.

RIA's strong liquidity position includes $17.9 million in unrestricted cash equating to 344 DCOH as of February 2011 and a cash funded debt service reserve of approximately $13 million (approximately $6.9 million of which is dedicated to the subject, general airport revenue bonds). The debt service profile is relatively flat and coverage has been no less than 1.6x over the last five years. Additionally, no new debt issuances are anticipated in the near term.

Management operates with a competitive cost structure and lowered its CPE to $5.12 in FY2010 from $5.50 in FY2009. Further, the airport has proactively managed costs to reduce operating expenses by approximately $1 million in each of the last two fiscal years.

Despite a five year CAGR of 2.4% for operating revenues, the high proportion of non-airline revenues (90%) remains a credit concern, exposing the airport to enplanement volatility and discretionary spending. Parking revenues comprise approximately 47% of operating revenues, followed by rental revenue (25%), and concessions (19%). Parking revenues declined by 9.6% in FY2009, but were flat in FY2010 due to longer parking stays offsetting the decline in enplanements. Overall, operating revenues were down 6.4% and 3.7% respectively for FY2009 and FY2010. Mitigating this risk is the airport's proactive management of expenses and recent increase in enplanements.

RIA is owned and operated by the Capital Region Airport Commission, which is a political subdivision of the Commonwealth of Virginia. The Commission is governed by a 14-member board where the city of Richmond and the counties of Chesterfield and Henrico can appoint four members each and Hanover County can appoint two members. Commissioners are appointed for four year terms and the Commission appoints the president and CEO.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance,' (Aug. 16, 2010);

--'Rating Criteria for Airports,' (Nov. 29, 2010).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345

Rating Criteria for Airports

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=578745

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