NEW YORK--()--Fitch Ratings has affirmed the underlying rating on the Massachusetts Port Authority's (MassPort, or the authority) approximately $97.7 million special facilities revenue bonds (BosFuel Project), series 2007 at 'A-'. The bonds are payable solely from facilities rent derived from a lease between MassPort and BosFuel, a consortium of member carriers serving at Boston Logan International Airport (Boston Logan or the airport). The BosFuel project consists of a consolidated fuel storage and distribution system at the airport to meet the fueling needs of all aircraft operators.
The Rating Outlook is Stable.
KEY RATING DRIVERS
ESSENTIAL AIRPORT SERVICE: BosFuel has an effective monopoly on jet fueling services at Boston Logan airport and is viewed as an essential function to the airlines at the airport.
PROVEN DEMAND AND LIMITED CONCENTRATION: Annual sales are approximately 340 million gallons with 93% coming from BosFuel member carriers. Boston Logan benefits from a diverse mix of domestic and international carriers, and has experienced very strong increases in passenger traffic over the past couple of years. Supporting the credit is the lack of significant airline fuel consumption concentration, as the largest carrier marginally exceeds 20% of airport jet-fuel consumption. Still, the bonds mature in 2038 and demand for jet fuel services could decline over time.
STRONG STRUCTURAL PROTECTIONS: There is a strong structural framework between the airlines using the fuel system and the fuel system operator, including airline reserve deposits and full step-up payments by the member carriers in cases of defaults or delinquencies from non-performing carriers; and the debt service reserve is now fully cash funded equal to one year of debt service.
ADEQUATE FACILITIES AND MODERATE COSTS: Fuel storage and distribution assets are adequate to meet projected needs. Estimated net member costs at about 3.4 cents per gallon in 2012 are marginally higher than peer fuel facilities but have remained mostly stable in recent years. Leverage is moderate at 9.4x on a net debt to cashflow available for debt service basis, and there are only very modest near-term capital expenditure requirements.
NARROW REVENUE STREAM: The special facility bonds do not have recourse to the authority's general revenues or fund balances. Only the BosFuel facilities rental payments paid by airline carriers support the debt obligation.
WHAT MAY TRIGGER A RATING ACTION
--Significant shifts in airport operations and fuel demand;
--Elevated carrier risks that could lead to defaults or delinquencies in payments to BosFuel.
--Capital needs that increase project leverage.
The series 2007 bonds are secured by a limited revenue stream of facilities rent payments made by Bosfuel under a fuel system lease. BosFuel collects revenues to support the required lease payments primarily from jet fuel to its member passenger and cargo carriers. The bonds are not secured by the general credit of MassPort.
The project continues to demonstrate stable operations. Fitch views the fuel distribution and storage system to be an essential component of airline operations at Boston Logan airport. The fuel system has been in successful operation for over 10 years and essentially all of the original capital improvements associated with fueling system have been completed with minimal future capital programs anticipated.
Currently, there are more than 20 airline members of BosFuel, accounting for over 90% of estimated total fuel volume at the airport in 2012. Fuel volume through the system is estimated at 340 million gallons in 2012, a slight 1% increase from the prior year. Boston Logan has experienced increases in both enplanements and aircraft operations of 3.1% and 0.8%, respectively, in fiscal 2012.
Consumption across all operating carriers at Boston Logan is highly diverse with JetBlue serving as the largest user at 21.4% of estimated total gallons pumped in 2012, followed by Delta Air Lines at 12.9%, American Airlines at 12.7%, and United Airlines at 11.4%. JetBlue is also the largest carrier at the airport in fiscal 2012 in terms of enplaned passengers, representing 23.8% of the total. Fitch notes that despite the bankruptcy filing of AMR and its operating subsidiary American Airlines in late 2011, the carrier has been making all of its required payments in a timely manner. As was the case in earlier bankruptcy filings of passenger carriers, the project has the ability to draw on member reserve deposits in case of delayed payments or withdrawal that follows a bankruptcy event. Currently, BosFuel retains approximately $4.6 million in membership reserve deposits which is equivalent to two months of total facilities charges.
The average cost of BosFuel's operations, excluding terminalling and pipeline costs, is approximately 3.4 cents per gallon. The average cost has been relatively stable in recent years and the fiscal 2013 budget indicates no major increases to project costs.
BosFuel is a Delaware non-stock membership corporation created for the purpose of operating the fuel distribution system at the airport. MassPort has granted the corporation an exclusive right to provide aircraft fueling services at Boston Logan. Membership in the corporation is open to all airlines serving the airport upon their acceptance of the interline agreement; however, fueling service is available to all carriers serving Boston Logan on a non-discriminatory basis with non-member airlines paying a higher rate.
BosFuel assesses a net facilities charge on all member carriers equal to its costs of operation, with 90% of the charge based on volume of fuel a particular carrier pumps through the system relative to the total volume of fuel pumped through the system and 10% allocated equally on a per capita charge. While there is not a rate covenant, charges are set to cover all operating expenses and debt service annually. In the event of a default by a member carrier, the interline agreement that governs the consortium includes step-up provisions requiring additional payments from the non-defaulting airlines, in the form of a loan, to assure full and timely lease payments. Fitch believes the adequacy of the legal terms and financial framework of BosFuel has been demonstrated through its performance, with all payments made on a full and timely basis, during the recent spate of bankruptcies in the airline industry.
Additional information is available on www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance', July 12, 2012.
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance