NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) has assigned a long-term rating of BBB+ with a Stable Outlook to the Susquehanna Area Regional Airport Authority’s (“SARAA”) Airport System Revenue Bonds. SARAA is a Pennsylvania joint municipality that owns and operates Harrisburg International Airport, Capital City Airport, Franklin County Regional Airport, and Gettysburg Regional Airport. Harrisburg International Airport is the only airport under SARAA control that provides scheduled commercial airline service. More than 95% of SARAA revenues are generated from Harrisburg International Airport’s operations. As a result, KBRA’s rating and outlook on SARAA’s outstanding Airport System Revenue Bonds is largely derivative of the credit factors associated with Harrisburg International Airport.
The rating is based on KBRA’s U.S. General Airport Revenue Bond Rating Methodology. In the process of assigning the rating, KBRA reviewed multiple sources of information and met with SARAA management.
The airport system revenue bonds are limited obligations of SARAA, payable from and secured by a pledge of and lien on net revenues of the airport system. The master trust indenture defines revenues as income, receipts, earnings and revenues received by SARAA from the operations and ownership of the Airport System. Revenues generally include all rates, tolls, fees, rentals, charges and other payments made to or owed to SARAA. Passenger Facility Charge (PFC) and Letter Of Intent (LOI) revenues can be used to offset airport revenue bond debt service but are not included within the definition of airport system revenues.
Harrisburg International Airport is classified as a small-hub airport and is situated 12 miles southeast of downtown Harrisburg, PA. The terminal has 12 gates, which provide sufficient capacity for the airport’s current scale of operations. The airport is served by a number of major carriers including American Airlines, Delta Air Lines, United Airlines, Air Canada, and Allegiant Air. Airlines offer service from Harrisburg to most major hubs on the east coast and Midwest including Boston, Chicago, Washington D.C., Philadelphia, Charlotte, and Orlando. The market for air travel is almost exclusively origin and destination (O&D) from within the airport’s primary air trade area.
KBRA views the airport’s primary air trade area’s wealth levels and employment base as strong. Unemployment trends and real estate values continue to improve and recover from the Great Recession. The region is supported by a diverse business environment and tourism industry, both of which lend support to O&D air travel to and from the region.
SARAA’s financial operations have historically been relatively stable. Due to limited growth in enplanement activity, revenue growth has been outpaced by expense growth resulting in thinner operating margins. Capital needs at Harrisburg International Airport and SARAA’s three regional airports are very limited in the near to medium term. In 2002, SARAA undertook its first major capital program, which included the construction of a brand new terminal facility. In additional to the terminal building, the major projects of the 2002 capital improvement program included the construction of an aircraft apron multi-modal transportation center that included additional parking and rental car facilities, taxiway improvements, and various runway lighting improvements. The current 2017 through 2021 capital plan totals $75.5 million for all airports and there are no plans to issue additional debt.
SARAA’s management team is highly experienced. In KBRA’s opinion, the management team is forward-thinking and has successfully been able to manage large capital plans. The team has demonstrated its ability to maintain sound financial operations, even in challenging operating environments. These challenges include significant enplanement losses due to increased competition from nearby airports, economic downturns, and the loss of Frontier Airlines in 2015. Despite these challenges, management has consistently maintained adequate financial operations and debt service coverage levels in excess of financial covenants. However, Harrisburg International Airport’s inconsistent enplanement trends and significant geographic competition are noted concerns for KBRA going forward.
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