MIA Gets ‘A’ Rating for Bonds

By Ina Paiva Cordle, The Miami Herald

May 23–Fitch Ratings re-affirmed its previous rating and outlook for Miami International Airport’s bonds, despite recent cost overruns on North Terminal projects.

Fitch assigned an ‘A’ rating — its sixth highest — to Miami-Dade County’s upcoming $600 million bond offering, with a ‘Stable’ outlook. The agency also reaffirmed that rating on the county’s $3.2 billion in outstanding aviation revenue bonds, used to fund the airport’s $6.2 billion construction program.

The agency said it based its rating on the “airport’s role as the nation’s leading international gateway to the Caribbean and Latin America; significant cargo operations that offset costs normally borne by passenger carriers alone; strong demand for air service from the local market; a diverse mix of domestic and international passenger and cargo airlines; and enhanced management oversight of the capital improvement program.”

Miami-Dade Aviation Director Jose Abreu, who, along with his staff, met with three rating agencies and bond insurers last week, said he expects all the agencies to reaffirm their ratings.

“It shows we are on the right track,” Abreu said.

CREDIT CONCERNS

Still, Fitch said its credit concerns are centered on the size and complexity of the airport’s construction program and high cost structure; American Airlines’ dominant share of the market, which leaves the airport vulnerable to the carrier’s future routing decisions; significant competition within the South Florida market for domestic passengers; and the airport’s reliance on international travel for a considerable proportion of total passenger traffic.

MIA’s international passenger volume accounts for 46 percent of its overall traffic, and American and American Eagle account for about 68 percent of overall volume.

Last week, the Miami-Dade Airport and Tourism Committee approved an additional $43.5 million for the baggage handling system and another $20.8 million for the automated people mover for the North Terminal, which American will use. Abreu said the airport will need to pull $47.5 million from the contingency fund to pay for the cost increases, which will drain the fund beyond a “desirable” 10 percent level.

On Wednesday, to compensate for record-high fuel costs, American said it would cut its domestic capacity by 11 percent to 12 percent in the fourth quarter, eliminate jobs and raise fees. The airline has not specified which flights will be affected.

“This heightened level of concentration [of American] represents a credit concern, as the airport’s financial performance becomes increasingly influenced by the operational decisions of a single carrier,” Fitch wrote in its report. “This concern is somewhat mitigated by the number of carriers serving the airport, many of whom Fitch believes would act quickly to capture market share in response to any decline at American.”

The agency said it viewed the airport’s outlook as stable because of its progress in construction, recent gains in passenger volume and financial performance.

In 2007, MIA ‘s traffic rose 3.7 percent, and its consultant projects that passenger volume will rise at a 2.5 percent average annual rate through 2018.

COST TO RISE

MIA’s consultant’s projections now show the airport’s cost per passenger will rise to $35.05 in 2018, up considerably from $17.39 currently.

“While the airport’s forecasted [cost per passenger] is above that of comparable domestic airports and remains an ongoing credit concern,” Fitch wrote, “a portion of the airport’s costs represent higher capital expenditures for international gates, which are offset by higher yields attained by the airlines for international travel.”

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