Fitch Rates Atlanta Airport Revenue Bonds 'A+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A+' rating to approximately $372 million of senior-lien airport general revenue bonds series 2011A (Non-AMT) and series 2011B (AMT) issued by the City of Atlanta on behalf of Atlanta International Airport (ATL). Fitch also affirms ATL's outstanding $1.63 billion general revenue bonds at 'A+' as well as the outstanding $965.3 million passenger facility charge (PFC) and subordinate lien revenue bonds at 'A'. The Rating Outlook for all bonds is Stable.

Proceeds of the series 2011A and 2011B bonds will be used to current refund the outstanding series 2000A-C fixed rate bonds.

RATING RATIONALE:

--ATL is the busiest passenger airport in the world with over 45 million total enplaned passengers annually. It serves as the primary hub and corporate headquarters location for Delta Air Lines (Delta or DAL, Fitch IDR 'B-' with a Positive Outlook). ATL does face operating exposure to Delta and its affiliates, which accounts for over 75% of total passengers and contributes to the high level of connecting passenger traffic.

--The primary market area is large and locally-driven with approximately 15 million origination/destination enplanements in FY2010. Passenger traffic at ATL is steadily growing and 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. Fitch notes that airline seat capacity has been rising at ATL in 2011 despite the recent fuel price volatility pressures on domestic carriers.

--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). Management has indicated that the capital program is progressing within budget, particularly for the new international terminal.

--Signatory airline support continues to be evidenced by the most 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. Fitch notes that previous concerns with regards to ATL's variable rate exposure and swap arrangements have been fully addressed following debt refundings in 2010 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 Air Lines, 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 has been consistently 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 77% of the airport's total enplanements in fiscal 2010, a relatively unchanged level in recent years even though the carrier has reduced its presence at secondary hubs.

The next largest carrier, AirTran, serves a smaller but still relevant 16% 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 and could lead to volatility in ATL's future business performance.

On June 21, 2011, Fitch revised the Outlook on Delta's 'B-' rated IDR to Positive from Stable. An upgrade in the IDR to 'B' could follow later in 2011 or next year if DAL remains on track to de-lever in line with its plan to reduce lease-adjusted debt by an additional $3.5 billion by the second half of 2013. This would likely require a leveling off of fuel prices or a decline in jet fuel to less than $3.00 per gallon in coming quarters. Delta's 'B-' IDR reflects the airline's still highly leveraged capital structure, volatile cash flow generation through the cycle, and exposure to sharp increases in jet fuel costs against a backdrop of turmoil in world energy markets in 2011. The carrier has made significant progress toward lease-adjusted debt reduction over the past 18 months as the U.S. airline industry revenue environment has strengthened. Moving into this summer's peak demand period, the outlook for passenger revenue per available seat mile (RASM) growth remains good, and Fitch expects DAL to report solid passenger yield growth, helping to offset significantly higher fuel costs during the summer. DAL's competitive position in the global airline industry remains strong, with the integration of Northwest Airlines and the implementation of the trans-Atlantic joint venture with Air France KLM completed.

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 is monitoring its service development now that the acquisition of AirTran by Southwest has been completed in May 2011. Despite the continuation of an economic downturn, ATL's traffic levels have remained resilient. Recent enplanement figures over the past 12 to 18 months have been trending in a modest positive direction. Nine months of year-to-date figures for fiscal 2011 shows a 1.8% improvement traffic growth as compared to the same period in fiscal 2010.

The likely entrance of service by Southwest under its own brand coupled with the completion of the new international terminal may serve as effective catalysts for future growth opportunities. Management has indicated Southwest's potential growth for the Atlanta market can be material as there are currently 40 cities served by Southwest that are not currently served by AirTran. 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 over 4.4 million enplanements. Growth of international passengers has been significantly higher than those for domestic in recent years.

Funding for the capital program included prior bonds issues in 2010 as well as a planned to fund up to $575 million of capital projects within the next year. The debt issues will supplement other sources such as PFC pay-go collection, federal grants, and other airport funds. The combined debt level (general revenue plus PFC hybrid) represents a modest $57 per enplaned passenger. Based on the aggregate debt of the airport, the leverage in terms of net debt to cashflow available to debt service at under 5 times (x) 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 1.69x and substantial unrestricted cash reserves of $488 million (as of March 31, 2011). Airline costs per enplanement (CPE) are also modest for a large-hub airport at $3.40, and are projected to be slightly lower at $3.25 in fiscal 2011. Based on forecasts that contain reasonable growth assumptions, Fitch believes that coverage levels can remain healthy but will likely decline moderately to the 1.50x level. CPE levels are also expected to rise modestly to slightly over $5.00. Separate from these direct costs that carrier pay to the airport,the all-in CPE is $1.50 above this base rate as it includes additional outside operator payments.

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.

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 198 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'(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

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.