Fitch Rates Louisville Regional Airports Authority (Kentucky) $37MM Revs 'A+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'A+' to the Louisville Regional Airports Authority, Kentucky's (the authority), approximately $37 million airport revenue bonds 2008 series A (subject to the federal alternative minimum tax), scheduled for sale July 9th. Fitch also affirms its 'A+' rating for the authority's $382 million of outstanding airport revenue bonds. The Rating Outlook is Stable. The bonds are secured by the net revenues of the authority, primarily generated by the operations of Louisville International Airport at Standiford Field (the airport). Proceeds will finance construction of a hangar, as well as refinance a portion of the airport's outstanding debt for economic savings.

The 'A+' rating reflects the airport's strong origination and destination (O&D) traffic base, balanced passenger carrier market share, central role in United Parcel Service of America Inc.'s (UPS) air freight network, sound financial operations, as well as moderate concentration represented by UPS, which accounts for 26% of operating revenues. The Stable Rating Outlook is based on the airport's modest future debt needs, historically conservative forecasts of enplanement growth, and a lack of low-fare service at competing airports. As at other airports around the nation, management will need to be proactive should announced capacity reductions among the domestic airlines influence enplanement activity at the airport in late 2008 and throughout 2009.

The airport serves as the primary commercial airport for the 13-county Louisville metropolitan statistical area (MSA). The strength of the regional economy and the growing presence of Southwest Airlines (Southwest, senior unsecured debt rated 'A-' by Fitch Ratings) have generated a 0.8% annual increase in passenger enplanements at the airport since fiscal 2002. Southwest accounted for the largest share of the airport's enplaned passengers in fiscal 2007 at 31.6%. Delta Air Lines was the airport's second leading carrier in fiscal 2007, representing 18.6% of enplaned passengers, followed by US Airways 12.5% and American Airlines (American) at 11.4%. Fitch believes that the airport's diversified carrier mix and sizable O&D traffic base, which accounts for over 95% of annual enplanements, limits the potential impact of any individual airline's bankruptcy or scheduling changes on its financial operations.

Complementing the passenger operations of the airport is the presence of UPS's headquarters and central sorting depot for its air freight operations. UPS is in the midst of a $1.0 billion expansion of its WorldPort at the airport, which will increase in size to 5.2 million square feet under roof and sorting capacity to 416,000 packages an hour. UPS also relocated the heavy freight operations of Menlo Worldwide, which it purchased in 2004, to Louisville in 2006. UPS employs 20,800 at its Louisville area operations, making it the region's largest employer.

Fitch believes UPS's ownership and recent investment in its facilities at the airport indicate a long-term commitment to its Louisville operations; however, Fitch views the airport's dependence on a package freight business that can fluctuate with the economy as a credit concern. The company has a large presence at the airport in terms of overall activity and airport revenue. UPS accounted for 80.4% of total landed weight and 98.3% of the cargo passing through the airport during fiscal 2007, with the associated landing and other fees representing approximately 26% of total airport operating revenues for the year. This figure includes revenue generated by landing fee surcharges assessed against UPS to repay the airport for capital improvements required to accommodate UPS's operations.

The airport operates under a hybrid use and lease agreement, though the majority of revenue is derived on a residual basis. The airport's financial performance has been consistently sound, with coverage of annual debt service exceeding 1.43x in each of the last five fiscal years, reaching a peak of 1.68x in fiscal 2007. The airport's cost per enplaned passenger (CPE) equaled a competitive $6.03 in fiscal 2007. The airport's consultant projects continued sound financial operations, with the CPE peaking at $7.23 in 2013 while debt service coverage exceeds 1.63x through 2014. The airport's capital improvement program totals a modest $155 million through 2013, with minimal additional debt.

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