Fitch Rates Albuquerque, New Mexico’s Airport $14.7MM 2008 Bonds ‘A+’

Fitch Ratings assigns an ‘A+’ rating to approximately $14.7 million City of Albuquerque, New Mexico, Airport Refunding Revenue Bonds, series 2008. In addition, Fitch affirms the outstanding ratings for the City of Albuquerque, New Mexico as follows:

–$112.2 million senior lien airport revenue bonds at ‘A+’;

–$76.7 million subordinate lien airport revenue bonds at ‘A’.

The Rating Outlook is Stable. Net revenues of the Albuquerque International Sunport (the sunport) secure the senior lien bonds, with a subordinate pledge of net revenues securing the subordinate lien bonds.

The ratings reflect the sunport’s long-standing monopolistic role as the state of New Mexico’s (the state) primary commercial service airport, with limited competition for airlines and passengers posed by the state’s nine other, primarily commuter oriented facilities, and its strongly origination & destination oriented traffic profile which benefits from favorable service area economic and demographic trends (Albuquerque and Santa Fe MSA). Additional credit strengths include the sunport’s balanced mix of commercial service provided by both low cost and legacy airlines; continued healthy operating performance and debt service coverage; adequate balance sheet liquidity; and very manageable levels of financial leverage coupled with no known long term debt needs.

Offsetting these strengths is the sunport’s somewhat limited scope of air service, though new flights and markets are likely to be gradually added; slightly above average airline costs that largely reflects the structure of the airline’s hybrid use & lease agreement; and the moderate airline market share concentration in Southwest Airlines (51% of enplanements; long-term IDR rated ‘A’, Negative Outlook, by Fitch), tempered to some degree by the carrier’s long-standing operating stability.

Passenger enplanements at sunport grew steadily between FY2003 and 2006 at an average annual rate of 3.1%. In FY 2007, enplanements declined slightly by 1.1% due to a reduction in flights by American (long-term IDR rated ‘B-’, Positive Outlook, by Fitch) and Delta Airlines. However, serving as partial mitigants to this decline was the start of new service by Express Jet, flying regional jets to 6 destinations, and the addition of a new international flight to Puerto Vallarta, Mexico by Frontier Airlines. Forecasted FY2008 enplanement traffic is expected to finish at 3.3 million, slightly above 2007. According to year-to-date information, from July to November 2008, enplanements reached 1.5 million, or approximately 46% of forecasted 2008 results. While Fitch expects there to be some fluctuations in enplanement traffic going forward, Albuquerque’s service area and monopoly position in New Mexico provide for a solid base of traffic in future years.

The sunport’s operating performance is above the median for similarly rated credits reflecting the healthy financial contribution of non-aviation properties and the inclusion of customer facility charge revenues in operating revenues. While passenger facility charge (PFC) revenues, collected at a rate of $3.00 per eligible enplanement, are not included in operating revenues, they are available to support approved debt financed projects and are then included in net revenues available for debt service. Consequently, coverage of both senior and total debt service equaled a strong 1.71 times (x) for FY 2007 and should remain at or near this level in the foreseeable future.

The sunport has adequate operating capacity and facilities, and is not expected to issue any airport revenue bonds to fund the approximately $183 million of mainly routine capital projects planned through FY 2011. Funding for these projects will come from a mix of airport equity and federal grants (80%). To the extent a targeted funding source proves insufficient, the sunport may issue additional airport revenue bonds, potentially increasing the airport’s average cost per enplaned passenger (CPE, $6.86 in FY 2007). Importantly, Fitch notes the sunport’s slightly above average cost structure is reflective of its previous decisions to use general airport revenue bonds as the primary source of funding for major capital projects.

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