CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed Burbank-Glendale-Pasadena Airport Authority's (BUR) approximately $135.7 million of outstanding airport system revenue bonds at 'A+'. The Rating Outlook on all bonds is revised to Negative from Stable.
The Negative Outlook reflects concerns that coverage ratio trends may continue to weaken as a result of a combination of increasing operating costs and stagnating revenues in a declining enplanement environment. Absent successful budgetary actions or traffic induced revenue improvements, Fitch believes that the airport could face declines of its operating margin and debt service coverage ratio (DSCR) erosion bringing it closer to its rate covenant. Should these trends persist, downward rating action may be necessary.
KEY RATING DRIVERS
VOLATILE TRAFFIC BASE TIED TO HIGHLY COMPETITIVE MARKET: BUR had 2.1 million enplanements in fiscal year (FY) 2012 (ending June 30), a decline of 3.5% year-on-year compared to FY 2011. The airport's predominantly O&D traffic base is down 6.8% for the first nine months of FY 2013. Airline concentration risk exists, with Southwest Airlines Co. (Southwest) representing 66.6% of enplanements.
Revenue Risk - Volume: Weaker
STRONG COST RECOVERY FRAMEWORK: The airport has a residual use and lease agreement with minimal dependence on airline charges and a very low cost structure, resulting in a nationally low airline cost per enplanement (CPE) of approximately $2.16 in FY 2012.
Revenue Risk - Price: Stronger
CONSERVATIVE DEBT STRUCTURE: All of BUR's debt is fully amortizing and fixed rate. Gross debt service escalates to maximum annual debt service (MADS) of $11.2 million in FY 2016 and remains flat until FY 2027 when it drops to $5.8 million. Upon completion of the RITC project, CFC revenues and rental car company rents are used as an offset to annual debt service beginning in FY 2014.
Debt Structure: Stronger
MODERATE LEVERAGE AND EXCEPTIONALLY HIGH CASH BALANCES: The airport has notably strong financial metrics, driven by a very healthy liquidity position. Including the $105 million Facility Development Reserve, which Fitch understands to be completely unencumbered, the airport maintains 1,465 days cash on hand and leverage at a level below zero. If the airport were to deplete the reserve, days cash on hand would drop to 409 and leverage would jump to 10.5x.
Debt Service and Counterparty Risk: Stronger
MANAGEABLE CAPITAL PLAN: Phase 1 of the RITC project, which includes the construction of the RITC structure, the Consolidated Rental Car Facility (CRCF) and several other ancillary projects, remains on track within its original budget of $111 million.
Infrastructure Renewal and Development: Midrange
--An erosion of the airport's high cash balances to meet airport infrastructure needs would lead to a sharp increase in leverage, and would probably trigger a negative rating action;
--A decision by Southwest to exit or substantially retrench its presence at BUR could dramatically reduce the airport's enplanement base, likely leading to negative rating action;
--A continuation of the downward DSCR trend due to continued falls in general traffic, unsuccessful cost control or inability to maintain revenues by the third-party operator could put pressure on the rating;
--Inability to complete the RITC project on time and within the cost parameters currently forecast could also pressure the rating.
The bonds are secured by the net revenues of the airport.
Enplanements continued their multi-year decline in FY 2012 by 3.5% to 2.1 million. Of the FY 2012 traffic loss, 7.3% is attributable to American Airlines, Inc. withdrawing from BUR in February 2012. As a result of seat reductions, average load factor improved 2.5%.
Operating revenues were $45.2 million in FY 2012, 5.7% down from $47.9 million in FY 2011. This decline was primarily driven by a fall in parking fees and non-airline tenant rent. Operating expenses in FY 2012 were $36.3 million, up 3.5% from $35.1 million in FY 2011. Approximately 11% of BUR's total operating revenue is supported by the airlines. Non-airline revenues make up the remaining 89%, with the largest share derived from parking fees and non-airline tenant rent, which account for 65% of total revenue between them.
BUR's CPE in FY 2012 was $2.16, up from $2.09 in FY 2011. CPE is expected to rise to around $3 over the next five years, still significantly lower than competing airports in the Southern California air service market. FY 2012 DSCR declined to 1.63x from 2.36x in FY 2011 and is expected remain under 2.0x even with the benefit of transfers in the near term.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'Rating Criteria for Infrastructure and Project Finance'(July 11, 2012);
--'Rating Criteria for Airports'(Nov. 27, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Airports