CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed Jacksonville Aviation Authority, FL's (authority) outstanding $50.5 million series 2006 airport revenue bonds issued on behalf of the Jacksonville International Airport (the airport). The airport also has approximately $88.4 million in outstanding parity notes that are not rated by Fitch. The Rating Outlook remains Stable.
The airport's 'A' rating reflects an air trade area with stabilizing traffic trends that serves a large metropolitan area of northeast Florida and an appropriate mix of year-around business and leisure travel. The airport is serviced by a well-balanced mix of major carriers with competitive cost per enplanement (CPE) levels, $6.27 in fiscal year (FY) 2014. The rating is further supported by a fully residual airline agreement, manageable capital needs and robust financial metrics.
KEY RATING DRIVERS
Medium Hub O&D, Some Volatility - Revenue Risk - Volume: Midrange
The airport served 2.6 million enplanements in fiscal year FY2014, and is showing signs of stabilizing after experiencing some erosion between FY2007 and FY2013. Three major carriers account for 80% market share.
Low Cost Profile - Revenue Risk - Price: Midrange
The airport's new airline use and lease agreement (AUL) provides strong cost recovery terms and adds strength to the airport's financial condition. CPE levels are expected to remain stable in the high-$6 range, net of an $11.3 million annual airline transfer payment. The airport's revenue mix appropriately balances aviation and non-aviation sources equally.
Moderate Infrastructure Plan - Infrastructure Development & Renewal: Midrange
The six-year capital improvement plan is modest at $181 million, funded by airport monies, passenger facility charges (PFCs) and grants.
Fixed Rate Debt, Some Refinancing Risk - Debt Structure: Midrange
The airport's debt is fixed rate with a predominantly flat-to-declining amortization. Refinancing risk exists with a $34.7 million bullet maturity in FY2023. It is expected that the airport will extend this maturity.
Manageable Leverage, Adequate Liquidity - Financial Metrics:
The airport's net leverage position of 2.7x cash flow available for debt service (CFADS) is moderate and should remain so for the foreseeable future. The airport also maintains both high coverage levels (2.78x in FY2014) and adequate funding balances supported by debt service reserves and 532 days cash on hand (DCOH).
Peer Group: The airport's peers include Lee County, Florida (rated 'A'/Stable Outlook by Fitch), and Palm Beach County, Florida ('A'/Stable Outlook). Traffic and CPE levels are similar among the airports; however, Jacksonville's peers have lower coverage.
RATING SENSITIVITIES
Negative - Traffic Base: Significant declines or volatility in the enplanement base which greatly increase CPE levels;
Negative - Operating Performance: Management's ability to maintain and grow non-aviation related revenue while managing cost escalation is critical in maintaining the current rating level;
Negative - Financial Position: The addition of material leverage or the dilution of coverage for a sustained period;
Positive - The airport's size and traffic profile, coupled with inherent vulnerabilities to airline decisions, restricts the likelihood of a higher rating at this time.
CREDIT UPDATE
The airport's enplanements are stabilizing as the Jacksonville economy continues to recover from the recent downturn. Enplanements grew 1.5% in FY2014, to 2.6 million, and this trend continued in to FY2015 as enplanements through March are up an additional 2.3%. Fitch believes enplanements have reached a sustainable base level in the near term, provided the Jacksonville economy continues to recover and there are no material changes to airline operations. Further supporting this traffic base are recent increases in daily flight frequency to Fort Lauderdale (FLL, 2), Washington D.C. (DCA), Cincinnati (CVG), Pittsburgh (PIT) and Chicago (MDW).
Delta Air Lines ('BB'/Positive Outlook), Southwest Airlines Co. ('BBB'/Positive Outlook) and American Airlines Group, Inc. ('B+'/Stable Outlook), are the predominant carriers, with 32%, 28% and 23% market share, respectively. These carriers, along with two other major carriers, provide for a well-diversified market.
Positive trends in traffic and management's ability to contain operating costs led to strong financial performance in FY2014. Total operating revenue increased 2.4%, to $68.5 million, and resulted in an average annual growth rate of 2.7% since FY2009. Recent revenue performance was driven by growth in concession fees and parking, of 8% and 4%, respectively. Operating costs increased 2.2% in FY2014, to $45.5 million, driven by increases in maintenance, professional services and supplies, and airline promotions. Similar to prior years, the airport is conservatively forecasting a 6.7% increase in operating expenses in FY2015. The airport's operating margin remains stable in the low-30% range.
Annual debt service requirements are approximately $16 million in the near term, migrating down closer to $5 million by FY2025. However, the airport has a $34.7 million bullet payment associated with the series 2012 note due in FY2023. Fitch views the debt structure as atypical for an airport and this presents some refinancing risk in the future. Additionally, the airport maintains a fully-hedged floating-to-fixed interest rate swap associated with the series 2008 note. In Fitch's opinion, the airport assumes no interest rate or basis risk, and little counterparty risk with Compass Bank ('BBB+'/Stable Outlook).
Under Fitch's five-year base case forecast, which assumes slight enplanement growth of 1% annually and escalating costs of 3% annually, coverage averages above 1.7x, and Fitch expects CPE levels to remain consistent with historical levels. Fitch's rating case assumes a near-term enplanement stress of 5%, with only slight recovery thereafter, and an increase in costs of 4% annually. Under this scenario, CPE has to be annually adjusted by an additional dollar through FY2019 in order to maintain rate covenants; however, this is not viewed as a material concern at this time as CPE remains under $8. Gross leverage in both cases averages in the 4x-to-5x range, an appropriate level for the rating category.
SECURITY
The authority irrevocably pledges all net revenues of the airport, available PFC revenues and all funds established by the Bond Resolution. The PFC fund is currently pledged for payment on a portion of debt service on the series 2006 bonds and the 2012 note. Holders of the other parity obligations do not have a claim on deposits in the PFC fund.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Rating Criteria for Airports (pub. 13 Dec 2013)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725296
Rating Criteria for Infrastructure and Project Finance (pub. 12 Jul 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867
Additional Disclosures
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985583
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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