• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Fitch Rates Denver, Colorado's Airport $293MM Revs 'A+'; Outlook Stable

Posted on: Thursday, 25 September 2008, 17:46 CDT

Fitch assigns an underlying 'A+' rating to approximately $293 million City and County of Denver, Colorado, (the city), for and on behalf of its Department of Aviation (Denver International Airport (DIA) or the airport) series 2008C1-C3 airport system revenue bonds. The series 2008C bonds consist of the following sub-series:

--$92.6 million, 2008C1 (AMT);

--$100 million, 2008C2 (AMT);

--$100 million, 2008C3 (AMT).

Fitch has also assigned a long-term rating of 'A+' to the corresponding bank bonds. Fitch will separately assign additional ratings to the new issues based on bank enhancements. The series 2008C bonds will refund the 2000B and 2000C bonds. Fitch also affirms the 'A+' rating on the city's approximately $3.8 billion in outstanding airport system revenue bonds. All airport system revenue bonds are payable from the net revenues of the airport system. The Rating Outlook on all bonds is Stable.

The 'A+' rating reflects the large and diverse economy of the Denver Metropolitan Area, continued growth in origination and destination (O&D) and connecting passenger traffic, the airport's favorable geographic location, growing presence of low-cost carriers, and favorable airport use and lease agreement that consistently produces sound financial results. Credit concerns include the potential for additional leverage and an increased cost structure associated with the full implementation of a large capital program, ability to manage operating expense growth going forward, the challenges of operating in an environment with airline capacity reductions, and the moderate concentration risk presented by United Airlines.

The airport serves not only as the primary commercial airport for the Denver metropolitan area, but for the entire eastern Rocky Mountain area in general, providing natural regional connecting traffic to complement the national hubbing operation of United. The airport served a record 25 million enplaned passengers in 2007 with January to June 2008 year-to-date results up 4.4% over the year prior. Originating passengers accounted for approximately 57% of total enplanements, representing an adequate local component of overall traffic for a major connecting hub facility.

United remains the airport's largest carrier, although its share of enplaned passengers (including United, Ted, and United Express) declined to 53% in 2007 from 68.8% in 2000. While United's dominance continues to diminish, the airline still represents the majority of airline revenue, thus its scheduling decisions could significantly influence the overall financial operations of the airport.

Denver-based Frontier(including Lynx and Jet Express), which increased its share of passengers to 22.7% in 2007 up from 7.9% in 2000, serves to offset the dominance of United and provide price competition, which benefits the local consumer base. At present, Frontier operates under bankruptcy protection but has recently assumed their lease at the airport and is current on all payments due to the airport. Southwest Airlines grew its market share at the airport, having only recently entered in January 2006, to about 5.3% of total enplanements, in 2007. Fitch expects Southwest to continue to expand at DIA given its planned increase to 70 daily departures, up from its current 54 daily departures, by the end of 2008. While airlines at DIA have announced capacity reductions across the board, net augmentations and reductions to schedules are expected to result in flat to slightly positive results in the third and fourth quarters of 2008.

According to 2007 results, operating revenues and operating expenses are up 4% and 10%, respectively. Record passenger growth in 2007 bolstered non-airline revenues that include concessions and parking. Management has historically worked to manage its finances and control costs, however, costs associated with snow removal, overtime pay, guard services, janitorial services and repair and maintenance costs have resulted in a strong average annual growth rate in operating and maintenances (O&M) expenses between fiscal 2003 and 2007 at 9.5%. The airport's favorable economic model drove operating revenues to grow at a 4.3% average annual growth rate, over that same period, producing a strong operating ratio of 45% in fiscal 2007. The airport has consistently produced a strong liquidity position and has had an average of 390 days cash on hand, between 2003 and 2007, providing enough financial flexibility to cash fund projects.

Fitch Ratings expects the strong enplanement growth rate to ease as the competitive environment stabilizes and as fares align with demand and the growth in regional economy. The airport's feasibility consultant forecasts an average annual growth rate of 1.7% through 2013, growing more in step with the economy. The moderate enplanement growth will continue to produce a sound operating and financial profile through the forecast period. While the airport's leverage ratios improved over the five-year historical period, as debt was defeased and costs controlled, its leverage ratios and cost structure are expected to increase if the airport begins to implement its substantial capital program. The airport's net revenues provided a strong 1.68 times (x) coverage of annual debt service expense (including PFC revenues as a debt service offset) in 2007. The airport's forecast shows the full implementation of the capital program and coverage results of annual debt service (including PFC revenues) declining slightly to about 1.65x in 2013, as debt service for the new airport projects is included in the airlines rates and charges.

The airport's sizeable capital program which includes $987 million in projects through 2013 and is largely on hold as pressure on terminal capacity issues have eased given capacity reductions. The largest portion of the program would include terminal and concourse improvements at $465 million and airfield improvements at $177 million. The airport plans to finance the program through a variety of sources including federal grants, passenger facility charge receipts, and through future bond issuance that will fund an estimated $722 million in projects. The full implementation of capital program would results in the airport's cost per enplaned (CPE) passenger increasing to an estimated $15.01 in 2013, from $11.09 in 2007. While the airport's CPE remains above the industry average level, the difference will become more comparable as other airports continue to undertake major capital initiatives to address their respective capacity needs.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of site.

Source: Business Wire

More News in this Category