NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms The City of Philadelphia, PA's outstanding $1,423.3 million airport revenue bonds at 'A'. The Rating Outlook is Stable.
KEY RATING DRIVERS:
--The Philadelphia International Airport serves
a large population base with a relatively stable traffic profile.
Enplanements grew by 2.8% to 15.7 million in fiscal 2011, following
declines of 1.1% and 4.3% respectively, in 2010 and 2009. This airport's
exposure to connecting traffic is approximately 41% of total
enplanements, and exposure to US Airways and its subsidiaries accounted
for
67% of total passenger traffic in 2011;
--The residual use
and lease agreement runs through 2013 and provides for a competitive
cost per enplaned passenger (CPE) estimated at approximately $10.3 for
fiscal year 2011, although this is projected to increase to
approximately $13.5 by 2014;
--Stable financial profile and
adequate financial flexibility with total debt service coverage of 1.6
times (x) and debt per origination and destination enplanement is
estimated at $155 at the end of fiscal year 2011. The airport has
unrestricted cash balances of $118.4 million as of June 2010 or 245 days
of operations. Leverage is somewhat high at 12.7x net debt to cash
available for debt service (CFADS) and will likely remain high as the
airport begins preliminary work on its capital enhancement program (CEP);
--The
Federal Aviation Administration supported CEP over the next 13 years to
improve runway capacity and efficiency, thus easing congestion on the
national system, is estimated to cost $6.4 billion. It is expected that
future debt funding needs may pressure the airport's finances. However,
Fitch recognizes that airline Majority-In-Interest (MII) approvals are
required for the program to move forward and the airport has flexibility
to defer components of capital plan should traffic or airline
performance decline.
WHAT COULD TRIGGER A RATING ACTION?
--The impact of future debt
issuances in support of the airport's CEP. Effective planning and
airline commitment to the program are essential to maintaining financial
metrics consistent with the airport's rating and Outlook.
SECURITY:
The bonds are secured by net project revenues of the
Philadelphia International Airport. Additionally $478.4 million of the
outstanding bonds are also secured by a pledge of Passenger Facility
Charge revenues.
CREDIT UPDATE:
Passenger traffic at the airport grew by 2.8% to
15.6 million enplanements in fiscal year 2011, following declines of
1.1% and 4.3% in fiscal year 2010 and 2009 respectively. The proportion
of traffic connecting through the airport increased slightly to 59% from
57%. During this period, the total number of departures and seats
declined slightly by 0.3% and 0.8% respectively, indicating improving
load factors on flights served at the airport. The airport is one of the
primary hubs for US Airways, which remains the dominant carrier at the
airport. Including its regional/commuter jet subsidiaries, US Airways
accounts for 67% of enplanements followed by Southwest/AirTran at 13.3%
market share.
The airport system's use and lease agreement is based on a residual methodology for setting fees and charges, which have resulted in sound financial operations. The rate setting structure has allowed the airport to consistently record strong debt service coverage levels above the rate covenant coverage requirement. Based on preliminary estimates for fiscal year 2011, the bond debt service coverage is 2.4x compared to the covenant of 1.5x and total debt service coverage is 1.6x relative to the covenant of 1.0x. Non airline revenues excluding interest income and non recurring revenues are estimated to increase by about 6% in fiscal year 2011 and accounts for about 41% of project revenues.
The airport is leveraged at about 12.8x net debt to CFADS as of fiscal year 2011. Debt service peaks in 2015 at $126.95 million compared to $104.74 million in 2011. Taking into account the rising debt service obligations and growth trends in passengers, the CPE has trended upward to an estimate of $10.3 in 2011 and is projected to increase to about $13.5 by 2014. Any unanticipated or sustained declines in traffic given the current market conditions could either exacerbate the increases in CPE or lead to tighter financial flexibility. The CEP if fully implemented will likely lead to significant increases in unit cost.
Fitch notes that the airport is at a preliminary planning phase of an estimated $6.4 billion capital enhancement program over the next 13 years. The project which includes a reconfiguration and extension of the airport is designed to reduce delays which the Federal Aviation Administration has determined to have significant ripple effects on delays in the national airspace system. While details of the project have not yet been fully defined, it is estimated that about 63% of the cost will be funded with future airport revenue bonds and about 12% with PFC bonds. The impact of the additional leveraging on the future cost structure of the airport was considered but not included in Fitch's forecast.
The airport serves as the primary commercial airport for the Philadelphia metropolitan area and is one of the primary hubs for US Airways. Overall, the scheduled carriers provide nonstop service to about 125 domestic and international destinations.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Rating Criteria for
Infrastructure and Project Finance' (Aug. 16, 2011);
--'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=648832
Rating
Criteria for Airports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=578745
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