Fitch Affirms Manchester, New Hampshire’s Airport Revs at ‘A’; Outlook Stable
Fitch Ratings affirms the underlying ‘A’ rating on the City of Manchester, New Hampshire’s approximately $251 million outstanding airport revenue bonds. The Rating Outlook is Stable. The airport revenue bonds are special obligations of the city payable from net revenues and pledged funds generated from operations at Manchester-Boston Regional Airport (Manchester or the airport).
The ‘A’ rating reflects the economic strength of the air service as well as the airport’s financial performance and rate-making flexibility. Credit concerns center on the highly competitive New England airport environment, the airport’s high debt burden and on the increasing reliance on a single airline carrier for air service.
Passenger growth at the airport has become increasingly reliant on Southwest Airlines (Southwest) which held a 52% market-share as of fiscal 2007. Enplanements on Southwest increased 11% on average annually between fiscal years 2002 and 2007, while trends on the airport’s remaining carriers have been stagnant or negative as those carriers have reduced aircraft size and frequency at the airport. Somewhat mitigating this increasing reliance is the financial strength of Southwest and the airline’s generally stable operating trends at its various airports. Other carriers with a significant presence at Manchester as of fiscal 2007 include US Airways (15%), United Airlines (10%), and Northwest Airlines (8%).
Overall airport enplanements declined 2% in fiscal 2006 and 8% in fiscal 2007 after several years of very strong growth. The January 2006 liquidation of Independence Airlines, as well as the cessation of Nashville service at the airport by Southwest, played significant roles in the traffic decline, as did changes in the fleet mix of Delta Air Lines as the carrier underwent bankruptcy restructuring. Additionally, a significant but unquantifiable portion of the decrease in traffic is likely due to the rapid increase in low-fare service by jetBlue Airways at Boston-Logan International Airport (Logan), located 55 miles from the airport. Passengers enplaned at Logan on jetBlue increased 70% between fiscal 2005 and fiscal 2006, to reach 1.3 million enplaned passengers. Such rapid increases in passenger demand are common immediately following the inception of low-fare service and resemble the ramp-up seen at Manchester following Southwest’s entry in 1998. It is Fitch’s assumption that the traffic reduction at Manchester for fiscal 2007 reflects a short-term shift in travel preferences and options, rather than a longer term indication of shifts back to Logan for air service.
The airport maintained adequate financial margins despite the drop in enplaned passengers. The hybrid agreement and revenue contribution by non-airline sources such as parking (52% of operating revenue) continue to provide the basis for stable financial operations. Operating revenues were flat in fiscal 2006 due to the passenger downturn, but management was able to offset the downturn in aviation related revenues by proactively managing its parking operations. Expenses rose 4% in fiscal 2006 after a 15% increase in fiscal 2006 (due to a new security contract that year) and are expected to remain at moderate levels for the near- to medium-term. Fiscal 2006 net operating revenues, combined with pledged passenger facility charge revenues, provided 1.97 times (x) coverage of debt service. The airport’s consultant forecasts that net revenues and pledged funds should provide at or about 2.00x coverage of debt service through 2010, with the airport’s cost per enplaned passenger peaking near $6.00 during this period. The airport’s significant but nearly complete master capital improvement program mitigates the high debt burden, as little additional debt is anticipated in the near term.
Manchester’s airport service area also adds credit strength. The airport’s primary service area is Hillsborough, Merrimack, and Rockingham counties, which include the city (rated ‘AA+ by Fitch), Nashua (AA), and Concord, the three most populated cities in the state. Fitch expects that the thriving and wealthy economy of the airport’s air service region will provide a strong base for air travel despite the added competition from Logan in the near-term.
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