Fitch Rates Kansas City Airport (Missouri) $30MM Revs ‘A+’; Outlook Stable
Fitch Ratings assigns an ‘A+’ underlying long-term rating to the Kansas City, Missouri’s (the city) $30 million general improvement airport refunding revenue bonds, series 2008. Fitch also affirms its ‘A+’ underlying long-term rating on the city’s approximately $200 million of outstanding airport revenue bonds, its ‘A’ underlying long-term rating on the city’s approximately $54 million outstanding 2005C subordinate airport revenue bonds and its ‘A’ underlying long-term rating on the city’s approximately $117 million outstanding 2001 passenger facility charge bonds. The Rating Outlook is Stable. The bonds are expected to sell the week of August 11th by negotiated sale.
The 2008 bonds are being issued to refinance the $29.5 million outstanding 1997 revenue bonds and pay the cost of issuance. The general airport revenue bonds (GARBs) are special limited obligations of the city, payable solely from the operating revenues of the airport system net of operations and maintenance expenses. The 2005C GARBs are junior and subordinate with respect to payment of principal and interest. The 2001 PFC bonds are payable solely from PFC collections at the airport.
The ‘A+’ long-term rating reflects Kansas City International Airport’s low leverage, competitive airline costs and conservative capital plan. Credit concerns include the challenging economic environment facing the domestic airline industry and the resulting service cuts. Scheduled seat capacity at the airport for October 2008, as currently published, will be 20% less than for October 2007. Continued high oil prices and a weakening in travel demand could lead to additional cutbacks. Fitch expects airport management will proactively manage its financial operations in response to these service adjustments in order to maintain its sound debt service coverage levels and its competitive cost structure.
Kansas City International Airport is the 34th largest passenger airport and the 37th largest cargo airport in the country. The airport served 5,893,000 passengers in calendar year 2007, a 6.3% increase from 2006. Year to date the airport has served 2,974,000 enplaned passengers, a level virtually unchanged from the same period in 2007; however, for the month of June enplanements declined by nearly 10% from June 2007 due primarily to schedule adjustments by Midwest Airlines and USAirways. With the airlines having announced significant system wide capacity reductions in the fall of 2008, Fitch expects additional passenger declines across the industry through 2009, which are likely to have a negative influence the financial operations of the airport.
The airport operates under hybrid use and lease agreement, with terminal and apron rents determined on a compensatory basis while airfield and loading bridge fees are determined on a residual basis. The airport collects a $4.50 passenger facility charge (PFC) from each enplaned passenger and both a $3.00 customer facility charge (CFC) and a $2.00 transportation facility charge (TFC) for each rental-car contract day transaction at the airport. Airline cost per enplaned passenger was $4.06 in 2008, lower than average for similarly-sized airports, and has historically grown at about 5% each year. Debt service coverage on senior revenue bonds was 2.42 times (x) in 2008, coverage on subordinate revenue bonds was 1.84x, and coverage on PFC bonds was 2.48x.
The airport has a 5-year capital plan which totals $183 million, to be funded without any new issuance of revenue bonds. Given projected net income and historical grant receipts the capital plan appears reasonable. Outstanding debt excluding the PFC bonds represents approximately 2.5x 2008 operating revenues, a conservative ratio compared to other airports. All the authority’s outstanding debt is fixed rate.
Kansas City’s Aviation Department (the department) is wholly controlled by the City of Kansas City and operated as a financially separate enterprise fund. The committee reviews proposed Aviation Department legislation and objectives and then forwards a recommendation to the full city council for approval. A director of aviation is responsible for day-to-day administration.
Missouri law requires voter approval for the issuance of airport revenue bonds. On August 8, 2000, voters approved up to $395 million of issuance. Since that time the airport has issued $154.6 million, leaving $240 million of remaining issuance authority. Because the 2008 bonds are a refinancing of the 1997 bonds, they do not count against remaining issuance authority. Fitch does not anticipate that the airport will issue additional revenue bonds in the near term.
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